Subprime Lenders: 'It Can't Happen to us.'(Turmoil for Subprime Auto Sector)(consumer Finance Companies Specializing in Sub-Prime Automobile Loans Claim Their Accounting Regimes Are in order)(Brief Article)
Timmons, Heather, American Banker
Executives who lend to consumers with bruised credit were clearly unnerved Thursday by the sudden reversals at two big companies in the high flying subprime business. But they insisted no accounting surprises await their investors.
One distinction that most subprime lenders made: They securitize the majority of their loans, which, they say, requires careful and accurate book keeping.
"When you have ratings agencies and bond insurers that significantly monitor performance, this can't happen," said Robert Grosser, chief executive of Cityscape Financial Corp., Elmsford, N.Y.
Mercury Finance, which disclosed it had overstated earnings by $90 million over the past four years, retains all its auto loans in portfolio. Jayhawk, which unexpectedly disclosed a $7.9 million loss in the fourth quarter, does securitize.
Securitization of loan pools amounts to a monthly audit, agreed a spokeswoman for Olympic Financial, a Minneapolis auto lender. She added that Olympic would also never release earnings figures that had not been audited, as Mercury did.
Chief executives of publicly traded companies were buzzing with theories about the problems at Mercury.
Hugh Miller, head of Delta Funding, Woodbury, N.Y., said he was "shocked."
"To misstate assets like that, you'd have to have your whole accounting department in on it," he said.
Many eyes turned to KPMG Peat Marwick, the New York-based firm which had audited Mercury. …