#320 - Underwriting - The Ultimate Guide

This is the Independent Dealer podcast, education by Dealers for Dealers. Now, here are your hosts, Luke Godwin and Jeff Watson.

Hello and welcome to the Independent Dealer Podcast, brought to you by Luke Godwin, Jeff Watson and Buckeye Dealership Consulting.

Hey.

So we're going to continue our ultimate guide series, and I want to talk today about underwriting. Very specific. So if you're a retail dealer, if you have no interest in buy here, pay here, obviously, go ahead, turn this off, flip over to Joe Rogan or something, I don't know. But, well, if you are invited.

Before, before you switch over though, Jeff, I plan to bring. We plan to bring a retail dealer on next week to discuss first quarter. So come back next week. Don't, don't, don't leave forever, please.

Luke doesn't want you just to abandon us. I get it. So in order to tack this topic of underwriting, Luke, we brought on two experts. 50 years underwriting, hundreds of millions of dollars of loans underwritten. These two guys are experts. They run their own buy here, Pay here programs. Mr. Luke Godwin of Godwin Motors out of Columbia, South Carolina. Mr. Jeff Watson, Four Seasons Auto out of Southern Utah.

Yeah, you know, it's funny you say that. You kind of say that in Jeff and in Jeff, but in Jessica and I, you know, thinking about how many under underwritten loans I've done in my 25 years of buy here pay here, I mean, it's a large freaking number.

Yeah, yeah. If you think about it, I mean, you sell, even small guys like us, you know, three to 400 cars a year. Your typical loans, about two and a half length, you know, of actual length of loan. So, yeah, over the course of 10,000 years for me and 30 years for you, that's a lot of loans. We've looked at applications.

It's over 10,000 loans and what they say about the 10,000 hour rule. I wonder if the 10,000 loan rule.

Makes you an expert. Well, we're going to, we're going to impart upon our listeners the wisdom we have for underwriting. And Luke, the way I want to set this up is just, I'm going to go off my framework, which is really, really basic. I look at overall, my philosophy is stability, ability and character. And I want to dig into each one of those three and we'll talk about some other areas and things. But for me, that's really the most important thing is stability, ability and character. When we talk about.

I totally agree. And stability, I think, is, is the, the most important of all three of those. I You know, I think it's hard to judge character, but stability, it gives you two things. Stability means you kind of know that the car is going to be where they say it's going to be if you do need to repossess it, and that, that these customers have been doing something for a while so that they kind of understand ups and downs. So I think stability is so important.

Yeah. So let's dig into each one of those. And yes, I want to start with stability because it is so important. Small buy here, pay here is like us, even if you're regional, the, the big thing is if the loan or when the loan goes bad, the ability to get your collateral. Right. So, so that's, that's one of the most important things in that is me doing a repossession in my county is about 250 bucks, right. Me doing a repossession two states over is about 2500 bucks, right?

Yeah.

So the ability to reach out and grab your collateral is, is one of the most important things to make sure your car stays as close to you as possible. I think there's also a mental thing that customers have when they start getting, you know, a couple hundred miles or a state or two over from where they bought the car. For some reason they think that you, you can't repo them when they, when they're, oh, well, guys, the guy's out of my state. I guess I can't pick up the car anymore. Why is it the customers just kind of stop communicating or stop being in contact or is that just my experience?

No, it's not. And you know, I mean, honestly, it goes back to, to children, Right. When your children are around you, they'll listen to you. Right. And if they're within arms, if they're within arm's reach of a good smack upside the head, they tend to, they tend to listen a lot better. So, you know, it's, it's the idea of, you know, out of sight, out of mind. And I think that's, that's a, a good reason to make sure that these people, when you're underwriting on a loan, that, that they have stability, stability in your community. And if you look at, you know, there's some of the biggest buy here pay here dealers in the country are in small rural settings. And I think of one just right off the top of my head in southeast Georgia and Rainy may be the biggest buy here. Pay here, private buyer pay here in the country. And they are in, you know, in south Georgia. And they built it in These small rural towns. And they built it on the backs of people who have great stability in those communities. And that's probably the reason they've been so successful, because people in smaller communities tend to stay in those smaller communities, is what I'm getting to.

Yeah, and that's, that's incredibly helpful for other reasons in that you have a network. You know, people that have a network have the ability to stay. They have the ability to lean on someone when times get hard, if they have to. You know, they get booted from the house, they lose their job, they have somewhere to move in. One of the most telling signs for me is also the references. And we don't call references. The only reason I collect references is to create that network. I want to know if your references are only co workers and your boss, then I know that you've burned every single family member that you have. Right. I want to know where your mom lives, where your dad lives, where your siblings live, and do you have contact with them. Are you willing to put their name and phone number on a reference list? Because that means you have a network. And it also means you haven't burned your ties or burned your bridges with everyone close to you.

Yeah. And you can think about this, and I'm going to come back to the reference sheet, but you can think about this as, as a tightrope. Right. And that our customers are walking a tightrope. And if, if they don't have the net underneath them or safety, you know, around their waist, it's easy for someone with poor credit that makes that have made bad decisions in the past to fall off that tightrope. And we know what happens if you fall off that tightrope and you don't have a support system. If you don't have a net under there, you're just gone. And in that support system, the ability to keep a support system is hugely important as well. I went away from a reference sheet a couple years ago and I still don't understand why we went away from it. But it's something that I've really been thinking hard about and I think we're going to go back to it. I'm hoping the company that we use for underwriting can incorporate a reference portion into our, into our initial application because it's so important to look at those references when your collateral goes missing or like you're talking about, do they have any references? You know, the worst thing in the world would be that if, if they put down three references and none of them lived in your town, or in your city or your state, you pretty much know that they're not going to be in your area very long.

Yep, yep. Exactly the second they have a hiccup. And one thing to understand with our customers is it's all cyclical. It's ups and downs, right? So you have to determine what. Where on that cycle you're catching this customer, right? We've all had customers who have been absolutely amazing with us for two cars, and then all of a sudden you sell them a second or third car and it completely blows up. Right? Because a lot of times it's these factors that are outside of their control, right? A divorce, they get laid off, they get evicted, they have a death, they get sick, they get in an accident that totals out their car or something stupid insurance laps, right? It's just. It's a cycle. It's this constant kind of up and down. So you need to know where you're catching them on this cycle, right? Are they on their way up? Are they on their way down? And they're just kind of grasping at straws to kind of get them.

And you can actually. Two points I want to make here. You can actually see the cycle a lot of times with. And. And that's depending on what type of job do they have or are they in construction? If you look at a construction worker right now, that cycle has been up for a long time, but I don't see it slowing down anytime soon. So independent on probably the areas you live. So you can see that construction worker, which a lot of buy here, pay your customers are in that area. It's probably still on the incline. Let's just say, you know, factory workers. Well, there's still a lot of manufacturing going on in my area and there's actually more moving in. So you can kind of see the trajectory of that. So it's. It's something that you can really look at. And also a cycle during a year, our customers currently are at the top of their cycle. And so you can. You can watch that cycle head, head down, head south all the way to December. And if you can get that loan typically through December, and then the car is still running like it's supposed to, your cycle is going to start over, they're going to catch up and you can ride it again. So stability is super important. Jeff, how do you, you know, this is probably something a dealer out there is asking. What do you use to determine beside the references to determine someone's stability? I know we have ours. How about you?

So for the most part with us, it's going to just be, you know, time in the area and where your, where your network is. That's, that's really pretty much it for us. Yeah. And we have a 50 mile radius. So we say we only loan out to 50 miles from our store. We don't go any further than that. We don't want to get into neighboring states, you know, where laws and things are. Registration is so much more difficult. So we try to stay just to our state and in a 50 mile radius.

And that's interesting because you're at the bottom of your state and so Nevada plays a lot into to your area. So I can understand why you wouldn't want to do loans to people in Las Vegas, which is a very transitive transient state city. And plus you can't, you know, if you were making loans in Logan, which is six hours away, that'd be an issue as well. What we use is we love to see a utility bill and what that utility bill a lot of times tells you is, okay, that customer says they've been there a year, well, let's look at their electricity use for that year and how they pay that, the electricity bill. That gives you a lot of insight into the customer's ability to pay and how stable they are. A job is a huge consideration and stability too. I know we're going to talk about ability here in a second. Yeah. But the stability of a job and the stability of a career, it may not be the same job, but it's in the same field. Or you see, see that customer progressing in that field, it really shows a lot of stability from that customer. And one last thing, people who are really new to the buy here, pay here space, your stability quotient needs to be very high because you're not, you're not able to take chances that someone who's as seasoned as I am and have as many accounts as we do to take a chance on a customer just for the sake of it. Because it's a good way to lose a lot of money.

Yeah. So when we talk about companies that help us make our payments. Right. So like Blitzpay is one that we use. And what I worry about is we start to lose connection with our customers. Right. So obviously I'm at the point where I'm trying to take all of my payments online or digitally. I don't want people coming in the office anymore. I don't want to have them call in running credit cards. I don't want to be taking cash. I am going everything to self Serve. The customer needs to make the payment through the app. They need to make payments to cash through the cash network, which I think is a huge advantage of Blip Pay. And I love that. It's been super easy for me to integrate. FYI, if you're looking for a payment processor, obviously you guys know we've talked about them. Call them. Make sure you mention the podcast sent you in. You're going to get three free months of the software. Three. Three months of the cash network. But all that being said, Luke, is there a downside to not having the physical interaction? Because like I said, we want local customers. We want them to be close to our dealership. We want to see them, touch them, feel them. Is that counterintuitive?

It plays into stability. It does. But I can tell you this, having that customer come into the office is huge. If you want to touch every customer and if you're still a small dealership, it makes a little sense. The bigger you get, you got to have someone like BlitzPay to make sure you're getting your payments in. For one, it helps you with collections, and two, it makes it easy for the customer. The easiest way to get a customer not to pay. There's a couple of easy ways, but one of the easier ways to get a customer not to pay their loan is to make it hard for them to pay their loan. And that's not the case with blitzpay. So I'd recommend it to anybody out there.

Yeah.

Watching.

And that's where the advantages of like, even our cash payers, you know, we, we have skewed much more to the Hispanic market lately, which is a heavy cash type payment customer. So the fact that I might have people who are 50 miles out from me or close to that, they have to physically come back to my store to make a cash payment, that's very difficult. So a cash network makes a lot of sense where they can just go to a local CVS or Walgreens or Walmart and make that payment. That's going to break down that barrier.

Sure.

Which leads me, Luke, to my second most important point. To me, it's stability, number one. Number two, which I think is unarguable is the ability to pay. Right. Which is our payment to income. What is your payment to income ratio? And do you have customers that are staying within the acceptable, you know, payment to income ratio that you've set up? Right.

Yeah. So important when it comes to ability, it's all about that, that ratio. And the ratio to me is 20% of net that's ideal. Gross. Doesn't matter. People start talking gross, my eyes roll in the back of my head and I'm like, you're an idiot because you can't spend gross.

Yeah, yeah. It's all about the net take home and, and because you could have a garnishment, you could have some crazy stuff and everyone's going to have rent and things like this and other maybe first car payments or whatever. But if you look at that net take home to payment range, we all know that affordability of the car is the number one determination of whether or not that's going to be a successful loan, right? They might live five states over, they might live on the other side of the country. You could probably be flexible on the stability thing. But if that payment stays affordable for them, it's much, much more likely they're going to make the payment.

If the car runs and they have a job, more than likely they're going to pay.

Yeah, that's part of it. You know, there's so many little tangents to this when I don't even talk about the car, right? That's not even in my, my basic underwriting. I'm just assuming that we are keeping these cars running, right? It's like there's so many other factors to this, right? Is the car good? Do you have insurance? Do you have a CPI program? Do you have a warranty to help them keep it running? Are you, you know, making it easy for them to make the payment and communicate with you and work out hardships? Do you have deferment programs? Do you have, you know, blah, blah, blah. So there's so many little things that we can put on this program, but if your payment is not set up, right. And that's where I have a really hard time with different types of incomes and we've had this battle. I come back to this every six months or so. When you look at fixed income, you know, and calculating that into whether that's a good or a bad risk, right? Someone who's on SSI or disability or maybe tribal dividends, or if they have a fixed income that's coming from a source that is not them working, it could even be child support or alimony.

It.

I don't, I think that is not as good of a loan. Even though with like SSI that's a guaranteed income, I mean, it's going to happen. But the problem is, you know, that they can't handle a hiccup. They, they can't handle any kind of like bump in the road because they will spend to the very last dollar of that fixed income.

All that's all that fixed income is usually already spent. So it's a fine line. You cannot discriminate someone from a disability. A lot of SSI money is disability income. And you can't just say because you're in ssi, we can't use it. What I found with a lot of this fixed income is it's not really enough to afford our car payments. And so we have a minimum that you need to make net a month to do that. And it really rules out people who are on those fixed incomes. Now what we have seen though, is military retirement income being really stable, and it's usually a really good amount. And so we're in an area where we get a lot of that and that's really good fixed income.

Yeah, that's really important. You touched on that. And we should have qualified this entire conversation with make sure that your underwriting policies do not discriminate by any means based on, well, we finance 50 miles, but not this neighborhood or not this zip code or not this type of income or not this. Yeah, job. Well, I guess jobs aren't, jobs aren't protected classes, so you can discriminate on that. But the income source, that's a tough one, right? I mean, if you have a written policy that says, hey, based on these incomes, we, we score them at this percentage, right? If you are self employed and do not have a pay stub, maybe we're going to discount that by a certain amount. Right? If you're a gig economy, maybe we're going to discount that income by a certain amount because we don't know how stable that's going to be. Luke, do you finance, when we talk about ability, do you finance Uber Lyft, doordash, instacart?

Not knowingly.

Okay, so if they come to you and they say, hey, I'm a Lyft driver, I need a new car, it is a hard no go.

It is a hard no. Unless. Let me, let me back this up, let me roll this back a little bit. Unless if the customer's primary source of income is not gig work, then yes. If they have a real job and they're using this just as a true side hustle, we don't count that income. But you want to talk about someone where they, they fall off track a little bit. This, this gig economy can really help somebody jump ahead or make up for, for time they're out. So don't discount this gig work. As long as people had a Good, stable stability, normal job.

Yeah. So I would look at that as. Like you said, it's a great possibility because they can just turn the dial up if they need to cover a repair. If they need to cover their payment, they can just log more hours. So that's where the great thing about the work comes in, as opposed to a fixed income. But what happens is you have to treat those cars and the depreciation of that collateral the same way as you would a fixed income. Right. Because if you're getting SSI or ssd, guess what? You have nothing to do all day but drive around. And, and I guarantee you your car is the taxi for the family. Right. You are the taxi driver for the family because you don't have a quote unquote job. Now, if you're a gig worker, same situation, right. You're depreciating that car because of the wear and tear and the miles you're putting on it. You can underwrite those loans. Right. And I do at times, but I definitely. The term is, is very, very short.

Yes. It's all about ability. You talked about that before. The ability of that car to make the loan gets shorter. And so you have to think about the, the total ability, the ability to afford the ability to make it. And that's a, that's a really big deal because some cars just, they're not going to make it if someone has a normal job and they're only using this as a true side hustle. They only have, they have limited hours that they can do this. Right. So, yeah.

Anyway, what it will also do is, is, you know, we talk about our reinsurance companies and our CPI products and things like that. Certain income, certain sources and certain underwriting needs to be factored into that. Because if you are underwriting someone and you find out that either they're a gig or they're, they're working 100 miles out of town every single day. They might live in your lending radius, but they're driving across the state to get to work every single day. You've got to factor that into your reinsurance products because, because yes, they will blow through your warranty very, very fast. And yet they will still want repairs done, right?

Yeah, it doesn't matter for sure. And that's the reason we try to sell as much vsc, you know, using our Buckeye reinsurance company because it's protecting your asset. It's making the ability of that loan to perform up to its, its true potential. And I'm sure with you, you have a lot of People that drive to Vegas every day to work.

We don't finance those ones. No, that's okay. Self employment, cash only, tips folks, you know, the street workers, that, that's not provable income. But what we, what we do do is if I know someone's driving a lot, then, yes, we say, hey, Mr. Customer, you're going to blow through this three month, 3,000 mile warranty that I'm giving you for free. We definitely need to upgrade you to a 1212 or a 2424, because we want to make sure that you're covered. You know, you're going to be putting a lot of miles on this thing. Let's make sure that your warranty covers the majority of your loan. Right.

You know, Jeff, I don't want it.

To cover all the loan.

Yes, you don't.

Right. We talked about that previous episodes. I do want that engine to go out at, you know, the third to.

Last six months ago. Just kidding. I joke with our customers when they come in to pay their car off. And we get that a lot. As I said, I'm going to press the button now. And they're like, what button are you talking about? I said, the button that makes your car break down.

That probably builds a lot of trust.

You know, it's, it's just, it's a good laugh, Jeff. I'm not sure if we've ever shared this before, but before I went on to a underwriting program software, I had a spreadsheet that, that I built that scored every customer. And one of the things that you're talking about here is the distance from their home to job. That was one of the scoring methods. And also the distance from our dealership to their home.

Yeah, that's two.

Really, really happy to share that with anybody that reaches out as well.

Yeah. Message Luke through the podcast. His link's on here and he can send that out to you if you want his spreadsheet on how to score, which hopefully, if you're listening to this and you're in the Buy Here, Pay here, you've kind of built your own.

So.

But it's good to get someone like Luke to add on and maybe make that a little more robust or maybe some of the stuff you haven't thought about. Which again, another plug for Buy Here, Pay here United. Guys, it's coming up. It's. You're just a couple weeks away, but there is still time to get your tickets, books, to get your room booked and show up at Buy Here, Pay here United down at the Bellagio. Late April. So go to Buy here pay here united.com get yourself registered. We're going to have great wrap ups at the end of every single day. So if you've made it this far through the episode, you're definitely a buy here pay here dealer. This is the event you want to be at because we're going to go into so much more depth on this stuff. And you can have one on one conversations with guys like Luke who can email you over their underwriting spreadsheet and you can build out your own scoring model in house. Let me ask you Luke, at what point do you think a custom, a dealer should move from scoring it themselves on a piece of paper or through a spreadsheet and switching over to one of the programs like Neo or Autozoom or Approve Owl or any of these other underwriting models?

When you have, when you are not touching every application as a dealer, when you're allowing managers or sales people to grade it. I think you need to look at doing that. What we did when I had sales people, they would score it on the, on the spreadsheet and then I would have to verify everything was done properly.

Yeah, I would say probably, you know, to give it a number. I think if you're going, if you're at the 60 apps a month, 60 applications a month or more, you know.

That'S, it's hard to get through that many.

That's two to three a day on average for a, for an underwriter. And if you, the owner are not able to touch it, then you're allowing someone else to do it. And now with that being said, I know that a paper scoring model or a, or a, or a Google Doc scoring model can be manipulated just as easily as my NEO program can be manipulated. I have seen that over and over. This month where I go into neo, I see someone who's an amazing score and I'm like, wait a minute, click click, click, boom. All of a sudden they drop from an A to a C because I click the right buttons or actually put their application in a little more accurate. Right. So unfortunately your salesman, they will learn how to work the system and they know that if they tweak this little time in the area, this little job time, or if they put the EV tax credit as a down payment instead of a deferred down, it knocks the customer completely up into an A.

Regardless. Garbage, garbage in, garbage out.

You still got to be auditing it either way. So don't think that it's foolproof. Now Luke, my final one and we're going to wrap this up. Is character. Now you had mentioned very hard. Right. Stability is like a, A very non subjective one. Ability, totally by the math. I have a percentage now. Character. That's one that's. It's just a soft feel. It's a I don't know how you do it vibe. Let me tell you.

I don't know how to.

Let me give you a couple of examples. So on the character side, some things that I like to see or know. My dealership is very small, so I hear a lot of what goes on in the cubicles. Right. The sales cubicles. I know what's happening for the most part if I'm here. What I found is that when we talk about character is overall, is the customer grateful that you're getting them into a car?

Right.

That is, I think such a huge determining factor of whether you're going to have a successful loan and a good relationship with this customer is do they feel grateful? You're grateful? I'm super stoked that they're here. I'm. I'm really excited that we got a car. My salesmen are excited that we got them a car. We're giving these people freedom. They're no longer dependent on rides or Uber or walking. But does the customer feel that way? Right. Or do they feel like you owe them something? They're entitled. If you ask them about a previous repossession, do they just sit there and blame the car or blame the dealership? Oh, you know, Joe's car barn sold me a piece of crap and that thing broke down and that's why I didn't pay for it.

Yeah.

Like what's the attitude of the customer when they're in front of you?

I think attitude is. I'd probably use attitude instead of character when you talk about that, because attitude does matter. If you want to talk about character. Looking for past repossessions and past paid for auto history is, is probably a portion of a character, you know, process. Yeah. So looking, looking for those past repos, super important. Looking for, for just charge offs in general. Super important. It kind of leads to character. We question every person has a past repo, why they haven't there's an open auto, why is it open and all these type things. You get a lot of insight into a person's attitude or, you know, maybe character when you look at that. So yeah, I don't mind using that as a basis.

Yeah. The other thing, of course, which plays into this a little bit is looking at their trade in Right. Walking past the car that they drove in on, what does it look like? Is it taken care of? Does it look like a trash can on the inside? Guarantee you if you take a car in that's a trash dump, your car will be a trash dump in a couple of weeks. The other thing that I think is fun sometimes is I will ask for a random stip. Right. Hey, you know, we need another, we need another utility bill. Oh, hey, we need a third pay stub. Or hey, you know, we need a, a letter from your cousin's uncle's sister about the day their dog died and the obituary from your grandmother. Like you, sometimes if I feel like I'm on the fence about someone, I will throw a little hurdle up or a little hoop to jump through just to see if they trip themselves up. Oh, what do you mean you need my pay stub? Yeah, like I'm going to give you a $10,000 loan. We need a current pay stub. Well, I told you I made 5,000amonth. Yeah, okay. If you can't just get me a pay stub, if that's like your hang up and you have a problem with that, then this is not going to be good.

If you, if you ever question a pay stub, whether it's real or not, the best thing to do is ask for bank verification. I want to see where it went into the bank. And when you start asking those questions, you will, you will find a person's character really quickly. They go, yeah, no problem, I'll get it for you. Or they make a big deal about it. And that probably will tell you that what they've given you so far is not accurate. So that's a really, really good way to kind of blow people out. The office you're on the fence about.

Absolutely. A couple of final wrap up items. Do you finance someone that has a previous repossession with you?

You know, we're running into this more and more. We've been in business now for almost 40 years, Jeff. So to find someone that is shopping us that has had a past repossession for us, probably happens 10 times a month. We take them, we take them, you know, one by one and we look at them. Did the customer turn the car and do we have to chase the customer? Did the car break down? This happens. And we look at them one by one. Did it happen last year? Did it happen 10 years ago? So yes, we do finance people who we've repossessed before. And those people, some of those people pay perfectly. We do Finance people that we repossess before and we repossess them next month.

What about previous skips?

No, absolutely not.

Hey, so you do know you still have my Silverado somewhere, right? You never gave that back. I don't know why you're here. We had one guy rolling in, he was a skip and he came in, in the truck that he skipped in.

Oh my goodness.

To see if we could work something out. And I was like, you know, we've been chasing you for a year and a half in that truck. Absolutely craziness. What about bks? Either you think they're loading up for a BK or if they've recently filed or had a, a discharge.

If they're loading up for a bk. Kind of hard to see. But if we've got any inclination, we do not finance them. If they've had a previous discharged, bankruptcy and discharge properly 100%. Those are some of the best customers you'll ever find. If they are currently in bankruptcy and just got into bankruptcy. No, if they've been in bankruptcy for a while and this is not going to be included in the bankruptcy, which it shouldn't be, then a lot of those customers are really good. So we find previously discharged, properly discharged are good. Bad discharges are bad. We don't do those. And newly filed or bad folks have been in for a while are good. That's what we see.

Especially chapter sevens. Right. I mean if you filed, if you've had a chapter seven discharged. Yeah. Sucks for the previous creditor, which was probably me. But yes, the guy down the street's going to sell him a new car because he just shed his debt. Obviously 13s are a whole nother ballpark.

But a properly paid chapter 13 creates a really, really good customer. Bad credit is what we have found because they, they've been taught how to pay, they've had that snafu, they've come out, they maybe have learned a lesson and they become really good.

Yeah, I never really thought about that of a. If they've, if they've gone all the way through the, the plan and they've actually paid all the way to the end of the 13.

Yep. Really good customer.

Yeah. Well, also, if you can garnish their tax returns and other types of things, that'd probably be great too. But unfortunately I do not have the power the federal government has to get my hands on people's tax returns.

Hey Jeff, one thing before. We've talked about a lot of things here that, that compliance really matters and I just want to throw a plug to Steve Levine out there and their compliance unleashed. That's coming up in May. Steve's a great, great person to have on your side in this industry. So if you, if you need some compliance, that's a, that conference in May is a good place to find it.

Yes, that is a great place to go. Get your policies, procedures, your red flag rules, all your underwriting guidelines that must be written down. Put them in a Google Drive, put them in a word doc, put them in a training manual. Just make sure they're written somewhere and review them often with your sales staff so that they know the standard that you have, so that if someone questions it, you know that you've been taught. If someone says, hey, this guy, he didn't approve me because of where I lived or the color of my skin or my type of income. No, no, Mr. Customer, here's what happened. This is our guideline. It's written. We judge everyone the same. You know, if it's not written, then it's just completely up to the mood and the attitude of your salesman or your, your, your finance manager. And that's what I found for me when I was underwriting the loans. It literally depended on how I felt that day. Right.

Very well. Very well. Good. Yeah.

If I felt like I needed to get loans out, then I was super lenient. If I felt like I had just had three or four skips or total losses, I was super. I would pull way back. Right. And I'd be very, very scared. So that's where kind of a, a non emotional scoring model is really, really important. Whether it's a simplified spreadsheet or more sophisticated service that you pay for. Yeah, the emotion out of it.

Just last week we got an email. I got an email from a customer we denied. And his. Essentially his. He was trying to say that the reason he was denied because he was a disabled veteran, which is not even close to the truth. And I had to, of course, respond to him and tell him why he was denied, which was the same reason our finance manager told him he was denied. But, you know, you do have to have these things in place, make sure they're written down, make sure you're doing it the same way every time.

Yes. And we didn't talk about this, which I think is still important to touch on. Pulling credit for Buy Here Pay Here customers. Is that needed? Is it not? Does it matter? What's your feeling?

I, I did it for. I did not pull credit for 35 years, Jeff. And my loans performed per. They, they performed very well. Okay. We just started pulling credit on these customers in the last four or five years or three years. Maybe three years. Two, three years. And it gives you insight that you can't get from a feeling. And so I think, I think there is some need in it. I think there is. And I don't think the customer's mind, you know, especially with the ability to pull soft pulls down, that really doesn't hurt customers credit. I think, I think there's some really good reasons to pull the credit.

Yeah, a lot of it is just to verify what they've told you.

Right.

It comes down to the character, the ability thing, you know. Can't tell you how many times we found an open auto loan. Right?

Yeah. Yeah.

Oh, what's this one? Oh well, my daughter's driving that. That's not mine. Well, it's on your credit. You know, you either sign for it or co sign for it. But it's on here. So you know, maybe you forgot that you're on the hook for this $700 a month but it's there. So that's part of it is just that trust but verify or don't trust and verify, whatever that is. Yeah, just to see those things. So I do think that pulling credit is become almost standard because I'm the same with you, Luke. I went for 15 years and never pulled a credit report ever. Not even a score, not even a softball. Right.

Yeah.

It was just your job is your credit. But now yes, we do soft pull everyone and some people will hard pull to get a real deep look into their, their credit report if we need to to go a little bit further.

But I think, I think it's the normal now and people understand that. Yeah, that's what I think. Yeah.

Luke, this was great. I hope you guys got some insight into the underwriting philosophy that our combined 50 years, $100 million in loans could lead you. If you have questions, please guys reach out to us info@the IndependentDealer.com you can leave comments on our YouTube. I think Luke might log in once every three months and respond to them. So. So hopefully it's not a time sensitive matter. If it is, send us an email. But you're definitely going to see us at buy here pay here United in a couple weeks. So stop us then and ask us questions if you have any on underwriting.

Sounds great Jeff.

Adios.

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