Michael Lupacchino originally hails from a small suburban town 30 miles outside of Boston, Massachusetts. His educational pursuits led him to Rhode Island’s esteemed Providence College where he obtained his bachelor’s degree studying Business Management and Political Science. Upon graduating, Michael Lupacchino moved to New Hampshire where he began his professional career in the financial sector with Fidelity Investments.
Though Fidelity was a good introduction to the financial sector, Michael wanted more hands-on involvement with his work and transitioned to Countrywide Home Loans ‘Full Spectrum Lending Department’. It was here that Michael Lupacchino first became acquainted with collateralized secured loans in both confirming and non-conforming varieties. Countrywide’s Full Spectrum lending division specialized specifically in sub-prime lending, and this exposure introduced Michael to a whole new market dynamic that was largely untapped.
In 2008, the great recession caused a shakeup in the market, Countrywide got bought out by Bank of America, and the subprime market, in general, was in great decline. Banks drastically cut back their lending guidelines and subprime lending was greatly scaled back throughout all industries. However, life is very cyclical in nature and it was in the seeming death throes of the sub-prime lending market where there became a chance for the birth of a new great opportunity. This was what lead to the inception of Mass Credit, LLC.
Michael Lupacchino met with who would become his future business partner and together, they seized upon this opportunity to create a new financial institution that would lend where the conventional banks had stopped. Michael’s partner was involved in the car business, and his expertise in the auto industry was a perfect complement to Michael’s experience with collateralized secured subprime debt lending. Only this time, Michael would be financing cars not homes. This was the geneses of Mass Credit, LLC.
How did you get started in this business? What inspired you to start this business?
I first got started in the subprime lending business working for Countrywide Home Loans. I was a part of their “Full Spectrum Lending Division”, which was their fancy way of saying “subprime division”. Countrywide got bought out by Bank of America after the mortgage bubble burst in 2008 and across the industry banks greatly scaled back on their lending guidelines in general. The subprime lending market pretty much dried up. My current partner, who is a car dealer, saw the effects first hand. He was losing sales because many potential buyers were being rejected by the banks. Loans that a year ago the bank would fund with no questions asked, were now being outright rejected and denied. He saw an opportunity that he could capitalize on that would allow him to sell more cars and make some profit from the financing as well.
He knew my background in subprime lending from Countrywide and over lunch offered me an opportunity to buy into this new business. He had a business associate who had started up a similar finance company out of state two decades before, and it was wildly successful for him. It sounded like a great opportunity, I was instantly on board.
How do you make money?
We make money by going where most fear to tread. We are willing to take a chance when others are not. We will take that risk where others won’t. We are involved in a risky business; sub-prime lending is inherently risky. However, if you lend responsibly and offer quality products and services, you can still be successful and profitable in an inherently risky business.
There is a misconception out there that sub-prime borrowers are all irresponsible people who don’t pay their bills. The truth is, a lot of people with bad or no credit are just regular people who encountered some unexpected hardships. Either a medical emergency, or divorce, or unexpected injury or death. There are lots of situations that can be thrust upon a person that will turn their life upside down. Some have bad credit due to bad decisions they made as a kid, or some people just simply never established any credit. The trick is having a good solid set of guidelines to help separate the hardships from the exploiters.
How long did it take for you to become profitable?
We were instantly profitable our very first month in business, at least on paper. In this business you have to put a lot of money out on the street before you really start to see it come back. For easy math, let’s say hypothetically you write ten loans at ten thousand dollars each your first month in business. Even with an industry average default rate of thirty percent and say a estimated loss of five thousand dollars per default, you’re still doing very well if the rest of your ten loans payout to term. However, to get that initial 10 loans financed, you have to have one hundred thousand liquid capital to fund the dealers that are sourcing and writing the loans for you, and that’s only for 10 loans! Left unfettered, you could quickly run out of money or lend yourself out of business so you have to start at a slow pace and gradually ramp it up.
You can’t have a salesman’s mentality in this business, because if you are all about “selling” and putting loans on the street, you could easily put out 50+ cars a month by financing every deal that comes across if you wanted to. But just because you finance a deal doesn’t mean it will pay out, and you can easily lend yourself out of business that way, not to mention being able to have the five hundred thousand plus liquid cash needed to be able to finance said 50 deals that month.
When you were starting out, was there ever a time you doubted it would work? If so, how did you handle that?
We entered into business very excited and optimistic. My partner saw firsthand, through his car dealerships, how many sales they were losing due to the inability of customers to get financing. We knew there was a big opportunity there. That’s not to say that we never, or currently, don’t have doubts of any kind, but in the beginning, you have the Cinderella effect going.
The best way to deal with doubts if self-discipline. It’s all a mental state of mind. You have to be focused and determined to not let doubts or fears drag you down, and to have the fortitude to work through any issues you are having. You’re going to have downturns and times that aren’t so good, I’ve heard many stories from entrepreneurs, my partner included, who had to work an entire year or more without getting a paycheck because they were working through a tough time. They could have just given in and given up, but they stuck with it and worked through it. Things will eventually turn around if you put in the work and don’t allow yourself to get down.
How did you get your first customer?
The first customer was automatic, we finally became open to the public and ready to lend in February 2010 after waiting for all of our licensing to go through which was a multi-month process. The first customer of ours was actually an employee of one of my partner’s dealerships who needed a car but had bad credit. Unfortunately, our first customer ended out turning into our first repossession, but in this business that’s a nature of the beast, you’re dealing with. The industry average default rate in buy here pay here level sub-prime auto financing is 30%. After our first initial customer, our next initial few were simply car buyers at my partner’s dealerships who came in looking to get a car, but who were unable to be approved. Whenever someone came in to try to buy a car, but couldn’t due to bad or no credit, they were automatically turned over to me. Later, we delved into buying internet leads from people searching to buy a car online with bad credit. Later on, you end up getting referrals and be backs.
What is one marketing strategy (other than referrals) that you’re using that works really well to generate new business?
The buy here pays here industry is not so much ad-dependent as one would think. It is more about word of mouth and reputation. You start to become known as the place to go to in the area when one has bad or no credit. Pay per click through google to help drive up your website presence for online searches can be effective and you can direct and obtain online customers that way. I’ve also found that you can have luck with paying for and buying sub-prime leads online. The quality leads will be exclusive, be in your local area, and are guaranteed to be people who are currently employed with a source of income.
What is the toughest decision you’ve had to make in the last few months?
Unfortunately, in this business, there are tough decisions that have to be made every day. Usually involving whether or not to take the chance in approving a higher than average risk non-conforming loan, or in how to deal with a grossly delinquent account. How much to escalate the collection process up to and including repossession and legal action. However, we recently encountered a different kind of difficult decision. It involved whether or not we should partner up with an outside dealer and expand our lending from all inside paper to some outside. It’s a difficult decision because when you are financing cars that are not your own, you don’t know for sure if the same quality is going to be there as with your own vehicles. In this business, if a customer’s vehicle stops working, they stop paying. So, we try to do what we can to minimize any type of hardship for the customer with our collateral.
Another issue you may run into is if the dealership you are partnering up with is going to be 100% open and truthful with helping to rely on and assess the risk of the deal and not trying to hide or downplay things in order to just sell and move more cars. In this case, we decided to go ahead with the new business relationship as they are a very reputable line of dealerships and we found that we had a very good working relationship with them along with good communication.
What do you think it is that makes you successful?
Success is a product of two main things; commitment to one’s own vision and hard work to make that vision manifest into reality. You have to have a clear picture in your mind as to what your success is and what you want it to be. It has to be distinctly etched in your mind and you have to think of it often. If you can keep your vision and commit the hard work towards achieving it, you will attain your success.
What has been your most satisfying moment in business?
The most satisfying moment is having a prosperous self-sustaining business that is able to help so many people. We’ve helped put a lot of people into cars who otherwise wouldn’t have been able to get into one. At the same time, we’ve also helped re-establish and rebuild a lot of people’s credit and put them on a much firmer financial footing. It’s a great feeling being able to provide hard-working people with a reliable car they need for transportation while at the same time rebuilding their credit which will help them tremendously in the future.
What does the future hold for your business? What are you most excited about?
The future is very bright for our business as we are right now on the cusp of a large sub-prime auto loan bubble, very similar to the sub-prime mortgage bubble in the late 00’s. When we first went into business with Mass Credit, LLC the conventional banks had all but stopped lending sub-prime. They wouldn’t touch anyone below a certain credit score because of the mortgage bubble that burst which buried a lot of banks who were irresponsibly lending. Of course, as time goes on banks forget about the past and their guidelines gradually get looser and looser and they start lending deeper and deeper.
Now, history is repeating itself and the banks are lending the deepest that I’ve ever even heard of in regards to sub-prime lending. Loans that I would never touch with a 10-foot poll are being financed by big mainstream conventional banks. High mileage cars being approved with 6+ year term loans, people with questionable income and job history, etc. Knowing what I do from personally being the decision maker on what gets approved, and then seeing how those loans perform, I can tell you that I would never be touching some of the loans that some of these big conventional banks are now green-lighting. Knowing the industry as I do, I know that a great number of these high-risk loans being written will inevitably default. Once this sub-prime bubble pops and these banks experiences big losses from those defaults, they are going to reign back on their lending once again and will once again open up a huge opportunity for us. The vacuum caused by them pulling back will be filled by us, just as it was at our founding.
What business books have inspired you?
I have found Robert Kiyosaki’s books to be very informative and inspiring. They do a great job at explaining the dynamics between simple wage slaves, business owners, and entrepreneurs. As well as highlighting and emphasizing the benefits and financial independence that comes along with being a true entrepreneur. I am also a big fan of “The Creature from Jekyll Island” by G Edward Griffin. This book gives an in-depth overview of the creation and mechanics of the Federal Reserve system, which I believe is incumbent for every US citizen to know.
What is a recent purchase you have made that’s helped with your business?
We have invested in some internal bookkeeping software, “Micro 21”, which we have found invaluable for our purposes. They do a great job of organizing our accounts, payments, and even credit reporting. It’s a wonderful software created and managed by a small company. They do a fantastic job.