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GM Increases GM Financial’s Credit Line

DETROIT — General Motors Co. today increased its financial support of General Motors Financial Co. (GM Financial), providing the captive finance company with a new $1 billion line of credit.

The new support agreement replaces an existing $600 million credit line. It also provides that GM will use commercially reasonable efforts to ensure that GM Financial will continue to be designated as a subsidiary borrower on up to $4 billion of GM’s corporate revolving line of credit.

“GM Financial is a core component of GM’s business and this agreement will strengthen its capability to support GM’s strategy,” said GM President Dan Ammann.

As of June 30, GM Financial had total available liquidity of $4.8 billion, consisting of $1.4 billion of unrestricted cash, $1.8 billion of borrowing captivity on unpledged eligible assets, $990 million of borrowing capacity on unsecured lines of credit and GM’s $600 million credit facility.

Since being acquired by GM in 2010, GM Financial has significantly increased its share of GM’s business, which now represents 75% of GM Financial’s consumer loan and lease originations. The new credit line comes at a time when the captive finance company is expanding its product offerings, including the rollout of a prime lending program to GM dealers during the second quarter, and operations into International markets.

“With the acquisition of the international business, the growth in our North America product portfolio and the diversity of our funding platform, we are well positioned to support GM as its captive auto finance company,” GM Financial President and CEO Dan Berce stated in a company press release. “The support agreement represents the next step in the evolution of GM Financial and further cements our position as GM’s captive.”

The support agreement has been filed by GM Financial on Form 8-K with the United States Securities and Exchange Commission.

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New Credit Score System Finds Many Borrowers Less Risky

We always knew that most people have decent credit. It turns out, about 44 percent of the U.S. population has crazy good credit. That’s according to a new way to model credit risk from Fair Isaac Corp. and the data firm CoreLogic.

On July 10 the companies launched a new credit score that combines the data that credit bureaus typically track, such as mortgages and credit cards, with outside data CoreLogic mined from public records, like property records and liens, and from its proprietary sources, such as short-term installment loans for used cars and rental information. “By having that added visibility, we are able to get a more precise score and picture of the borrower,” says Tim Grace, vice president of CoreLogic, based in Santa Ana, Calif.

The new score will not replace the traditional FICO score, at least not any time soon. Regular FICO scores are required by many lenders but banks can use the new score to supplement the regular score. For example, if your regular FICO is 680 but your new score is 720, a lender may take a deeper look and, over time, could depend on the new scores if banks find them to be more useful.

FICO offered a breakdown of the distribution of the new scores, in this accompanying chart. It shows a huge increase in the number of people with a credit score of 800 to 850, the highest possible bracket. That segment more than doubles, meaning that about 44 percent of U.S. borrowers present almost no credit risk.

The jump in that top tier is about equal to the decrease in the number of people with a score between 700 and 799. So there’s a big shift from good credit to fabulously good credit. On the lower end of the credit spectrum, slightly more people have scores between 560 and 639, but the changes generally are small. Grace says the combined data can be 10 percent more effective at predicting mortgage defaults for the riskiest 10 percent of borrowers.

Overall, 70 percent of people have better credit under the new measurements than the standard FICO analysis, Grace said. The reason behind the shift is that the alternate analysis incorporates more factors in determining the likelihood someone will default. For example, if you have a second mortgage with a credit union, that would show up in the new score but not the old. Similarly, if you’re a renter, your landlord may have used CoreLogic’s systems to check your credit score originally, so if you have paid on time and haven’t been evicted, your credit score could benefit.

“This would give perhaps more opportunity for those that have been considered ‘unscorable’ with a thin credit file,” says Melinda Opperman, senior vice president at Springboard, a California-based non-profit credit counseling agency. “They will be able to gather more data to provide them a credit score.”

For consumers, the new measurement also means more data to monitor since credit bureaus can have inaccurate information that you must contest to remove from your record. Starting next year, you’ll be able to check your new credit report for free once a year on annualcreditreport.com, and if you want it before then, you can call 877-532-8778.

Twenty-five lenders are testing the product, Grace says, and he hopes that Fannie Mae and Freddie Mac will study using the score in their underwriting requirements. Since the dramatic shift is at the top, it’s unlikely that a whole lot more people will suddenly qualify for mortgages who didn’t before. (CoreLogic’s sampling showed that about 1 percent of borrowers would jump over 700, a threshold used by many lenders.)

Still, there could be a bigger effect on how much borrowers pay for money. With so many people now presenting almost no risk, they could take advantage of lower rates.

This article was written by Karen Weise and published in Bloomberg Businessweek magazine.

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U.S. Consumers Paying Down Debt, Remain Cautious, Equifax Reports

ATLANTA — Equifax reported that nearly 60 of the top 100 metropolitan statistical areas (MSAs) hardest hit by credit card debt realized double-digit declines in the percentage of income owed to credit card companies — nearly 24 percent in some areas.

The cities with the most sizable reductions include Florida, Louisiana, Washington and California. Florida tops the list as the state with the most cities — five — realizing the largest declines, reported F&I and Showroom magazine.

“It is interesting that MSAs from some of the states hardest hit by the recession showed some of the biggest reductions in credit card debt,” said Trey Loughran, president of Equifax’s Personal Solutions business. “This suggests that consumers from these hardest hit areas have been especially cautious in their spending and diligent in paying down their credit card debt.”

Comparing percentage of income owed to credit card companies between the fourth quarter 2010 and the same period last year, the following MSAs realized the largest year-over-year declines for the country:

  • Fla.: Port St. Lucie – 23.59 percent
  • Fla.: Ocala – 20.97 percent
  • Wash.: Bremerton-Silverdale – 20.62 percent
  • La.: Shreveport-Bossier City – 20.10 percent
  • Calif.: Bakersfield-Delano – 19.05 percent
  • Fla.: Northport-Bradenton-Sarasota – 18.44 percent
  • Fla.: Tampa-St. Petersburg-Clearwater – 18.43 percent
  • Fla.: Lakeland-Winter Haven – 18.32 percent
  • Calif.: Salinas – 17.85 percent

The reduction in U.S. consumer credit card debt began a steady decline in the fourth quarter 2010 and continued through the end of 2011. Consumers owed up to 17 percent of their income to credit card companies in 2010.

Equifax reported that while total consumer debt (mortgage, auto, credit card, etc.) has declined nearly 11 percent from its peak of $12.4 trillion in October 2008, American households still owe more than $800 billion in debt to credit card companies.

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U.S. Consumers Doing Better at Paying Credit Card Bills

ATLANTA — A report by Equifax indicated that U.S. consumers continue to make timely payments and pay down their retail credit card and bank card balances, resulting in a significant drop in the number of card write-offs vs. 2010 levels.

The improvement in bank and retail credit card write-offs reflected a steady level of improvement over the last 18 months, according to Equifax. Bank credit card write-offs peaked at nearly 13 percent in July 2010 and retail credit card write-offs peaked at more than 14 percent in July 2010. Bank credit card write-offs currently stand at 5.53 percent (39 percent lower than 2010 levels) and retail credit card write-offs are at 8.4 percent (26 percent lower than 2010 levels).

Cumulative revolving card balances peaked in October 2008 at more than $752 billion, and, despite a recent uptick due to seasonal purchase activity, have since declined by almost 20 percent, according to Equifax. December 2011 cumulative revolving card balances stand at $604 billion.

Total consumer debt outstanding also peaked in October 2008 at $12.4 trillion, according to Equifax. In December 2011, U.S. consumers carried $11.1 trillion in total consumer debt, representing a decrease of more than 10 percent.

“Declining write-offs, growing card originations and the stabilizing of card balances are a precursor to balance increases, which can help to return the banks to profitability in this lending sector,” said Michael Koukounas, senior vice president of special client services for Equifax. “The industry is experiencing sustained improvement in consumers’ payment behavior and overall reduction of debt, a trend that seems to indicate more responsible lending and borrowing habits among card issuers and consumers alike.”

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Auto Finance Companies Originating More Loans Than Banks, Credit Unions, Equifax Reports

ATLANTA — The latest Equifax National Credit Trends Report revealed that auto finance companies have increased lending by more than 47 percent over the past two years. Auto finance lenders also have outpaced bank and credit union in lending to subprime borrowers over the same time period.

The report indicated that there were 854,800 auto finance company-originated loans in July 2011 vs. 581,300 for July 2009. Auto loans made to subprime borrowers now account for 38.5 percent of all auto loan originations for auto finance companies and 17.6 percent for banks and credit unions — numbers that are quickly approaching pre-recession levels, reported F&I and Showroom magazine.

By contrast, 820,200 loans were originated by banks and credit unions for the same period in July 2011 vs. 832,000 for July 2009, a decrease of less than 2 percent, according to Equifax.

Delinquency rates continue to improve for outstanding auto loans currently 60 or more days past due, which have fallen to 1.63 percent of loans. The improvement reflects a continuation of sustained credit retraction that the auto lending industry has experienced earlier than other lending segments, said Michael Koukounas, senior vice president of Special Client Services for Equifax.

“With unemployment rates remaining elevated for a prolonged period, auto lenders have proactively adopted more comprehensive data and verification tools for greater loan-level transparency in evaluating a wider band of consumers, which has helped enable the auto lending industry to recover more quickly than others,” he noted.

In July 2011, 1.7 million auto loans worth $32 billion collectively were originated, according to Equifax. From January to July 2011, 11.3 million new auto loans worth a collective $213.9billion (a 14.8 percent increase vs. the same six-month period last year) had been originated, a 13.2 percent increase over January-July 2010 totals.

The report also revealed that average monthly payment has remained relatively unchanged over the last year, signaling that the growth the industry is experiencing is tied to increases in number of loans rather than an increase in average loan amount, Koukounas added.

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Asbury Secures $900 Million Credit Facility

DULUTH — Asbury Automotive Group Inc. announced that it has entered into a new $900 million, five-year syndicated credit facility with nine financial institutions and five manufacturer-affiliated finance companies.

The new syndicated credit facilities, which mature in October 2016, provide for up to $625 million for new-vehicle inventory floorplan financing, up to $100 million for used-vehicle inventory floorplan financing and up to $175 million for general corporate purposes, according to Asbury. The facilities also provide for the expansion of the availability thereunder, up to a total availability of $1.175 billion, reported F&I and Showroom magazine.

“The new credit facility provides the operational and strategic flexibility we will need for the next five years,” said Scott J. Krenz, Asbury’s senior vice president and CFO. “We are extremely pleased with the support from of our banking partners and look forward to continuing to build on those relationships.”

The syndication was arranged through BofA Merrill Lynch, who also serves as the administrative agent. JPMorgan Chase Bank, N.A., and Wells Fargo Bank serve as co-syndication agents.

Lenders in the new syndicated credit facilities include American Honda Finance Corporation, BMW Group Financial Services NA, LLC, Mercedes-Benz Financial Services USA LLC, Nissan Motor Acceptance Corporation and Toyota Motor Credit Corporation. The nine commercial banks and other lending institutions in the credit facilities include BofA Merrill Lynch, N.A., Bank of the West, Comerica Bank, Deutsche Bank Trust Company Americas, Flagstar Bank, FSB, JPMorgan Chase Bank, N.A., Mass Mutual Asset Finance LLC, U.S. Bank National Association and Wells Fargo Bank, N.A.

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