Subprime 2.0 Spreads To Cars: OCC Warns Of Auto-Loan Risks

Tyler Durden's picture

It would appear that the exuberance over today's better-than-expected car sales data should be tempered significantly. Confirming our warnings, as the Office of the Comptroller of the Currency (OCC) explains, across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. With average loan-to-value rates above 100%, they have an ominous warning: "risk in auto-lending is beginning to emerge." We are sure this will be dismissed (just as the BIS' warning has been), but with surging charge-offs and increased repackaging (CLOs), and banks holding a lot of this debt, this 'bubble-financing' has all the ingredients for subprime 2.0 contagion.


Auto-loans are surging... Subprime auto-loans were up 10-fold in 2013...

As OCC reports,

Auto lending remained a highly competitive product segment, as strong growth continued through the end of 2013.

Banks reported year-over-year growth of 11.3 percent in the third quarter of 2013 and 12.9 percent in the fourth quarter of 2013 (see figure 18). Banks continue to hold a sizable market share of outstanding loans of $250 billion, or 31 percent of the total auto lending market.

But risks are rising... Signs of Risk in Auto Lending Beginning to Emerge
Across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. Loan marketing has become increasingly monthly-payment driven, with loan terms and LTV advance rates easing to make financing more broadly available. The results have yet to show large-scale deterioration at the portfolio level, but signs of increasing risk are evident. Average LTV rates for both new and used vehicles are above 100 percent for all major lender categories, reflecting rising car prices and a greater bundling of add-on products such as extended warranties, credit life insurance, and aftermarket accessories into the financing (see figure 26).

The average loss per vehicle has risen substantially in the past two years, an indication of how longer terms and higher LTVs can increase exposure. Average charge-off amounts are higher across all lender types over the last year (see figure 27). These early signs of easing terms and increasing risk are noteworthy, and the OCC will continue to monitor product terms and risk layering practices to ensure that banks manage growth and exposure prudently.

*  *  *
Close your eyes and keep buying... the water is warm... Risk is "contained"

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
PlusTic's picture

buy stokks/sell treasuries...welcome to fantasyland!

Manthong's picture

Who could possibly have seen that coming?

max2205's picture

LOL...LTV , the V goes down every month while the L not so much

Arrowflinger's picture

Yeah, the LTV for those US Government Hummers left in Iraq is infinite. The Loan is on your kids. The Value is in the hands of ISIS.

There will be no Repo man called, only a drone operator.

NotApplicable's picture

Hey guys, it's no big deal, as the risk has all been transferred...


dontgoforit's picture

Two years ago we traded in the 14 year old for a new one, 3.9%, 60 month.  Then the missus needed one to replace her gas-eating luxury car, 12 years old, 3.9%, 60 month.  So last week we put the two together at 1.95%, 48 months.  Savings around $1200 in interest and shaved 14 months off the second one.  We have income but no 'touchable' pile right now - just finished putting the last one through school.  The value of a credit score over 800 cannot be overstated.  If you're working and have made good on all your promises, you get the lower rates.  And most importantly, you have access to credit if you want or need it.  Those cars (and the mortgage) will be finished in four years - the month we retire. 

StacksOnStacks's picture

TARP 2.0 in 2014

TARP 2.0 in 2015

Oh regional Indian's picture

America represents the pinnacle of un-earned entitlement due to these weird credit policies (make that debt policies called credit policies).

And I can see India getting prepped for the same debt tsunami and NO lessons learned. Not even from all the millions of Indians in the US telling their bretheren here to watch out....

The bankster jaggernaught...

Lucky for me, they won't even lend me money if I asked. :-)


See the pic at the bottom of this post:

bagehot99's picture

It IS raining money. Provided you are a banker.

asking4it2k's picture

Welfare queens driving in Cadilac Escalades?

Yep and their 27% interest rates they cant afford.


Bailout coming?

NotApplicable's picture

People look at me funny when I drive through the hood in my old clunker, as I no longer fit in.

TBT or not TBT's picture

In my case, it may be that I look like a native born American who is clearly not up to no good.  

Carpenter1's picture

I'm waiting for all the 70% off sales on 6 month old cars I know is coming. Pick myself up an 80k something or other for 25k, or less.

Jayda1850's picture

What the hell else is GM gonna do with 28.5m cars?

mayhem_korner's picture

What the hell else is GM gonna do with 28.5m cars?


Apparently, recall all of them.

Rubbish's picture

$600 mo. for a car loan and registration? Don't think so, how about a 12 yr. old SUV with $15 a month registration



GOLD bitchez....................

Vampyroteuthis infernalis's picture

What the hell else is GM gonna do with 28.5m cars?

Eat the cost by liquidating them in Mexico then beg for a bailout from Obammy.

TBT or not TBT's picture

Build reefs.  Or even islands.   They could be called the UAW's.   

BurningFuld's picture

They just have to make sure they go Bankrupt before the end of Obama's term.

Tsar Pointless's picture

You can always count on Americans to do the right thing - after they've tried everything else.

Winston Churchill

Hey, Winston. We aren't done trying everything else, nor are we done repeating everything else we've done wrong before. So there.

Arrowflinger's picture

"nor are we done repeating everything else we've done wrong before"

Bankers get their fees through ever cycle of it, meaning this will never stop short of a collapse.


mayhem_korner's picture



Lots of dealers have seen their credit go sub-prime, and their lots have become "elephant graveyards" for channel-stuffed factory "sales".

NoDebt's picture

LTV over 100% is not all that unusual for an auto loan (value of the car drops dramatically the minute you drive it off the lot).  

All those deadbeat sub-primne borrowers will be money-good.  You'll see.  And who cares if they're not?  Banks?  No.  It's all gonna get heaped on taxpayers, just like the student loans starting to go seriously sour eventually will, too.

NotApplicable's picture

I bet my local credit union repos a dozen vehicles a week. That part of their lot is always full, and I never see the same one twice, so they obviously don't keep them long.

Yet another fucking jobs program. Can't we just get to the digging and filling holes routine already?

TBT or not TBT's picture

Because the next stage involves digging and filling long trenches.  

TBT or not TBT's picture

Nah, it will all be heaped on bond holders.  The U.S. govt runs on debt denominated in printed money.  Just get out of bonds and into physical stuff leveraged to the moon at fixed rates with the right timing.  

Cthonic's picture

This is just noise.

Blues Traveler's picture

yep, what difference does it make.

jay28elle's picture

So short is our...  our...., crap, forgot what I was saying.

wmbz's picture

The how much a month crowd would gladly sign on to 20 year auto loans, if they were availible. They do not look at interest rates or depreciation, don't care how upside down they are. It's all about the monthly nut, many/most have no idea what they are actually paying for the vehicle. Just gimme a new ride! 

IANAE's picture

Ask yourself who buys this non/sub-prime paper and trade/hedge accordingly...

firstdivision's picture

I asked, and the answer is "don't worry, be Yellen"

tarsubil's picture

I swear that I saw 84 month financing at a hardware store for grills and mowers. This is so obviously insane, I don't get how anyone can miss it.

FieldingMellish's picture

They will be long term financing weekly grocery purchases soon. S&P 3000 anyone?

dontgoforit's picture

I will gladly pay you Tuesday for last year's grocery bill.

cowdiddly's picture

You think that's insane? My neighbor bought a new RV 5th wheel camper. He works out of town a lot for the electric utility and wanted to save on motel bills.He told me that they can get financing of up to 17 years. INcredible, I guess they are now considered a mortgage or something. Maybe they are being realistic as this will be the next housing type people can afford? Most of these  things are built every bit as good as a fema trailer.

Scary really when you think about it. A nation full of people camping.

FieldingMellish's picture

Maybe they subcontracted the manufacturing to GM? Quality...

cowdiddly's picture

I have an old junky one I use for fishing trips and such but heck 30yrs ago I bought 240 acres and only financed it on a 15 year note. Well they say if you live long enough...........I just look around as an old man and shake my head these days.

dontgoforit's picture

Who would have ever thought: 10-cent bubblegum?

Peak Finance's picture

New RV's are fucking crap. It will not last the 17 years. They start to delaminate the first hot day, they are not sealed properly and always leak, you need to re-do the roof yearly instead of every few years like the old days, just terrible construction. 

He would have been better of finding one in pretty good shape from the late 80's or early 90's.

My next "RV" is going to be a gooseneck horse trailer "converted" to a living space instead of animal space. All steel and aluminum construction. Those horse trailers are un-killable.  

cowdiddly's picture

I have a friend that has something like that. He has competition cutting horses he hauls around to events. His trailer is all aluminum. It has an area for 5 horses at a slant in the back and the front area is a super nice living space with satelite TV tinted windows, shower, flat screen monitor. Its nice but I was afraid to ask what it cost or how long he financed that.

TBT or not TBT's picture

Just put wheels on a shipping container and trick that out.   Those shipping containers go through a lot.  Very solid. Like the hummer of RV bodies.  

dontgoforit's picture

You can take that interest off your taxes as a second home if you itemize. 

IANAE's picture

...check out the current lease deals, too... nothing like a little residual value arb when the sales cycle is overheated and money is cheap.

NotApplicable's picture

Did that once, the fuckers still expect you to pay the property tax. They actually had the nerve to send me a bill for their property.

FieldingMellish's picture

Keep shifting those Cadillac ELR's boys! Its the only incarnation of the Volt that actually makes money... perhaps. Just don't expect to win every drag race you get into, especially if its against a Honda Fit.