Black Book has announced the release of new Economic Scenario-Based Residuals, available to lenders and financial institutions with a portfolio of auto loans.
Black Book has mapped regulatory prescribed scenarios for this new suite of residual data, enabling risk and portfolio managers the ability to analyze how vehicle values will respond under different macroeconomic Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) scenarios as outlined by the Federal Reserve.
Black Book has historically made available to auto lenders its projected wholesale residual values of vehicles under baseline and various scenarios. These models were built with extensive analysis of historical sales data taking into account impact from macro-economic variables, fuel prices, vehicle incentives, supply and demand in the used and new markets, and other criteria.
Complying with the CCAR/DFAST requirements within existing quantitative models and a model risk management framework is one of the most daunting of the many recent challenges for financial institutions. These lenders have completed extensive work in predicting loss probability using a credit-scoring model. However, a key component of loss in auto loans is the severity of loss, which is driven by the ability to predict residual values. Leveraging this new suite of collateral data with economic scenarios at a vehicle level will greatly enhance a lender’s ability to properly assess risk, and aid in evaluating capital adequacy.
In addition to providing stress testing under CCAR/DFAST-driven scenarios including Baseline, Adverse and Severely Adverse, Black Book will also provide residual projections for custom scenarios such as a High Gas Price scenario.
“Many auto lenders have greatly enhanced their ability to gain regular insight into portfolio risk, including loss severity by frequently refreshing with updated collateral values,” said Anil Goyal, Senior Vice President of Automotive Valuation and Analytics at Black Book. “In addition, using residual data that not only assess accurate forecasted trend of the collateral, but data that is also mapped to specific economic conditions, can provide deep insight on “what-if” analysis of their portfolios.”
“Our scenario-based residuals are the latest enhanced data resource offered by Black Book designed to give our customers the most advanced insight into the performance of a vehicle’s value,” said Jared Kalfus, Senior Vice President of Sales and Marketing at Black Book. “Our legacy, accuracy of data and analytics innovation today combine to provide the industry’s most successful competitive edge for profit maximization.”