Sean McVity
Managing Partner
Garnet Capital Advisors, LLC

Dear Colleague,

This year, as professionals in the collections and credit risk industry, we are facing challenges unprecedented in our careers: the steepest economic decline in 20 years, which looks to grow even deeper through this year; rising delinquencies and charge-offs, with plummeting collection and recovery rates; and a dramatic loss of personal asset value. Sitting on top of record levels of personal debt, this has all the makings of a perfect storm for our industry.

The state of collections and credit risk is fragile. In credit-risk management, lenders are seeing delinquency rates double or triple across key credit segments including residential mortgage and home equity, auto and credit card.  Meanwhile, lenders are grappling with a shift in credit behavior in which traditional predictive tools have proven to be less reliable than in the past at predicting default and bankruptcy patterns.

On the collections end, creditors, collection agencies and debt buyers are reporting drops of 35%-50% in liquidation rates, as the consumer's ability to pay is squeezed by the triple threat of job loss, rising debt service and loss of value in assets including homes, investment accounts and retirement savings. In the secondary debt-sales market, which has become an indispensable tool in ARM strategy, pricing has fallen 40%-50%, which has had a marked impact on both recovery rates and the budgeting process for creditors.

In the national lending economy, bank failures loom large, with 25 banks with almost $400 billion in assets placed into FDIC receivership in 2008, compared to the same number for the entire six years which preceded it. And as the failure rate among banks grows, experienced credit and collections pros know that the borrower's tendency to default only increases.

As the new administration quickly moves to develop a comprehensive program to stabilize the economy, the government angle is mixed for our industry. On one hand, the Obama Administration seems determined to enact significant fiscal stimulus to stabilize the banking sector and mend the financial situation of consumers.  On the other, any stimulus is likely to come with measures that constrain our ability to claim and collect the debts we collect, including mandated debt modification and at least partial forgiveness, and increased scrutiny and regulation of both lending and collection practices.
Government regulation is a broad brush, and many of us are likely to peel the pinch of sometimes arbitrary and sweeping constraints on our core practices. Adding to this burden is the trend of increased regulation and targeting of collection professionals through FDCPA and in particular, the newfound zeal of state Attorneys General to target collectors.

Ultimately, increased availability of credit, credit's upward momentum on asset value and a better debt-balanced consumer will benefit our industry by making more personal capital available for repayment of debts; but in the short and medium term, collections professionals have reason to be concerned about the effect of federal and state government intervention during this crisis period.

We are a strong industry, however, and are already proving ourselves adaptable to the challenges of the current climate. As we assemble the 13th Annual National Collections & Credit Risk Conference, what I am struck by is not only the resilience shown by professionals across the industry, but also the speed with which the industry is developing new tools to help collectors and credit risk managers identify, segment and target risks to improve performance.
In our conference sessions you will learn about new predictive and analytic tools, enhanced collection technologies and an invigorated approach to best practices which are already yielding results. The program content will feature leading professionals from the banking, credit union, auto finance and collections sectors, as well as dynamic leaders in the areas of analytics and technology.
I invite you to attend the 13th Annual National Collection s and Credit Risk Conference, March 11-13, 2009, at the Hyatt Regency Grand Cypress Hotel Orlando, FL at this critical juncture to benefit from the best industry thinkers on the full spectrum of challenges and opportunities that will reposition us for the next generation of credit and collections management.

I look forward to seeing you in Florida.

Sincerely,

Sean McVity – Conference Chair
Managing Partner
Garnet Capital Advisors, LLC