The Board has asked you to review the auto-loan model in place in the firm. This model is designed to assess the expected loss related to each transaction underwritten by the firm.   

One of the model’s main purposes is to prevent auto thievery via fraud. Key methods of fraud committed on a loan application include income misrepresentation, employment misrepresentation, fake identity, false collateral, and / or of a straw borrower to hide the identity of fraudsters.     

(a) Illustrate how each of the three (3) common valuation and estimation errors can apply in the case of the firm’s fraud identification model. (15 Marks)

Regular portfolio risk analysis and reporting is carried out by the firm on the delinquency rates over its auto loans and on the recovery value of repossessed vehicles. The reports enable the firm to use data to drive decisions. The model provides integrated analytics, allowing business users to conduct nearly infinite variations of portfolio analysis. Analytics provides the ability to continually identify and evaluate risk factors that influence portfolio performance. It allows to make adjustments to credit policies and practices to mitigate risks.  

(b) Indicate at least three (3) concrete examples of information in the auto-loan delinquency report, which can lead to valuable insights for decision. (12 Marks)

  

Emerging technologies are transforming the broader automotive industry. Cars are becoming increasingly connected, with much of their value coming from their electronics, not just their metal. Connected cars are on the verge of providing additional data. Tracking devices can help indicate a vehicle’s location, speed, defaults, driving irregularities, and more. Safety and traffic warning communication, two-way vehicle collision avoidance or vehicle-to-infrastructure lane guiding are getting perfected to make vehicles fully autonomous and self-driving. Other car connection features can involve payments, techno-graphics and infographics (such as identification, demographics, address and utilities / bills paid by driver).  

  (c) Indicate two (2) impacts on risk assessment in the motor financing, derived from the technological developments in the car industry. (8 Marks)