A Conversation with Rebecca Lytle

I spoke last week with Rebecca Reynolds Lytle, Vice President of Lending at San Francisco Federal Credit Union (SFFCU).

Among other things we discussed the differences between a Gate and Gas and an Owner/Operator arrangement from her standpoint of making a loan to a new buyer. Other subjects came up during the conversation including, of course, her decision to require the full 20% down payment from those who choose the Owner/Operator lease and not accept down payment assistance except on a gate and gas arrangement.


Let Last Be First

It turns out that Ms. Lytle and SFFCU had already decided to require the full down payment from Owner/Operators before TAC voted to do so. The reasons for this were that an Owner/Operator loan:

• Costs more to underwrite and maintain.
• Has little or no way for the credit union to verify that various financial arrangement are, in fact, what the new buyers claim they are.
• Carries a higher risk because of this.

SFFCU wants to reduce their risk by getting the full $50,000 down payment from Owner/Operators.

In order to understand the reasoning behind this, it's necessary to see how these loans are structured.

Gate and Gas Arrangements

Lytle described these are "turnkey" arrangements because the company:

• Buys the car.
• Provides the insurance.
• Does the maintenance on the car.
• Hires the drivers and makes certain that they have good driving records and A-Cards.
• Etc.

The taxi companies are set up to do this and they have a vested interest in making certain that everything is done properly.  Therefore the credit union doesn't have to sweat the details.

Owner/Operators Arrangements

The Owner/Operator has to do all the above himself or herself.

In order to assure the safety of the loan, SFFCU and Ms. Lytle need to make certain that:

• The Owner/Operator owns the car and does have insurance.
• The drivers have A-cards.
• The Owner/Operator is complying with City regulations by not charging more than $104 per shift for a hybrid or $96.50 for a regular vehicle.
• Lytle is also considering getting copies of DMV printouts as supporting documentation that the medallion holder is complying with the Transportation Code.
• Etc.

All this involves considerably more work and thus more cost in terms of labor hours than a GG Loan. And, even after the additional issues, the loan company still has no way to guarantee that the information is accurate or kept up to date - although the credit union does require the Owner/Operator to provide updates on all the above annually, or sooner, if requested.

Because of the uncertainly, Ms. Lytle and SFFCU want to see a greater amount of financial responsibility on the part of an Owner/Operator. Lytle added that it doesn't make any sense to continue allowing  Down Payment Assistance on a loan with this type of lease arrangement when the MTA intends to stop this practice in the next 30 days or so anyway.

Forced into being Owner/Operators?

Prior to 10/14/2010, when SFFCU began requiring the 20% down, Ms. Lytle said that 63% of the loans were to Owner/Operators. She takes issue, however, with people who claim that new buyers have been "forced" by financial necessity into this type of arrangement.

Ms. Lytle pointed out that the $250,000 fixed price was chosen by the MTA requirement that loan payments not exceed the monthly amount that medallion holders are paid by taxi companies. The $250,000 number was arrived at by calculating the size of loan payments and comparing them to Gate and Gas monthly payments. Lytle also indicated that, in order to further validate the worth of the medallion, the MTA's fixed price was compared to medallion markets in Boston, Chicago and Philadelphia - cities similar to San Francisco.

SFFCU so far has made three types of loans;

1. 12 years with a fixed rate for $2,300 a month.
2. 15 years with a 3 year balloon payment for $1,798 a month.
3. 25 years with a 3 year balloon payment for  $1,440 a month.

The monthly payment is slightly higher if the borrower did not have the full 20% down payment and needed the down payment assistance loan. You can view examples of loan payments for all the different types of loans on the credit union’s website at http://www.sanfranciscofcu.com/loans/taximedallion_loan.htm

These numbers are consistent with the amounts that various companies pay their medallion holders.

To the charge that the interest rates will probably rise when the balloon payments become due, it could be said that there will probably be a meter increase before then, meaning that medallion holders will be paid more money.

Satisfaction

Ms. Lytle said that these taxi medallion loans have given her more satisfaction than almost any other loan that she's ever underwritten. They've allowed her to "help these people realize their dreams." The medallion holders or their relatives are "overjoyed" to be able to sell the medallions after thinking that they never would be able to do so. And the new buyers are "so excited" to finally get their medallions.

Ms. Lytle said that she would be more than happy to answer any questions about the loan programs. She can be reached at:

Tel. 415.359.2926   Fax. 415.447.2240
Rebecca_Lytle@SanFranciscoFCU.com