Goodbye FICO, Hello FAKE-O: Behold The Banks' Brilliant "Plan" To Lend To Deadbeats

Tyler Durden's picture

To be sure, the good folks at Santander Consumer and American Credit Acceptance (among others) are doing everything they can possibly do to get underqualified borrowers into used cars even if it means extending terms that will land some of these proud new owners in vehicles they absolutely cannot afford given their financial circumstances. This is all made possible of course by the Wall Street securitization machine which has churned out some $5 billion in subprime auto-backed issuance YTD, with a recent deal from Santander Consumer (DRIVE 2015-A) marking the lender’s return to the frightening world of “deep” subprime. As a reminder, here are two recent ABS deals which epitomize what’s wrong with this industry: 

From American Credit Acceptance…

From Santander Consumer…


Despite the fact that most mainstream commentators are in a complete state of denial about the space — with some anchors on everyone’s favorite “we don’t need Nielsen” financial network even going so far as to suggest viewers should try to arbitrage the difference between the rate you can get on an auto loan and the presumably higher returns you might be able to achieve in the stock market — some observers are playing spoiler including Goldman Sachs and the government. Here’s Deutsche Bank on the latter:

On March 26, the FTC announced six enforcement actions as part of their nationwide crackdown on deceptive practices in auto sales and lending, known as Operation Ruse Control. These actions were focused on auto dealerships and include both criminal and civil charges related to deceptive advertising, auto loan application fraud, odometer fraud and deceptive marketing of car title loans, among others. While CFPB doesn’t have jurisdiction over auto dealerships, FTC does, and we expect to see more of these actions as auto lending, especially in the subprime space, continues to garner scrutiny in the popular media.

And as a reminder, here’s what Goldman had to say recently about the market in general:

Based on our channel checks with US dealers we think GM and Chrysler have the highest share of sales coming from subprime loans at 14% and 15%. 


We conclude that GM and Chrysler are the most vulnerable among OEMs with potential EBIT headwinds of 7%.


We believe the challenge for automakers will be how they go about unearthing new opportunities to expand in a low-growth climate without a bubble forming in the US auto market. Drawing on past experience, we think risk of significant defaults will be averted by limiting sales to subprime borrowers. However, our base case is that US auto car sales for 2015 will be flat as a side effect of these actions.

Given all of this — and despite the fact that Santander’s latest ABS deals seem to suggest that  not having a FICO score not only isn’t an impediment to getting a car loan, but in fact isn’t even a stumbling block when those loans are packaged and brought to market — lenders just don’t feel like they have enough leeway when it comes to extending credit to people who probably shouldn't be borrowing money. Here’s WSJ:

Millions of Americans unable to obtain credit cards, mortgages and auto loans from banks will receive a boost with the launch of a new credit score aimed at consumers regarded as too risky by lenders.


The new metric, set to be announced as soon as this week, is being developed by Fair Isaac Corp., creator of the most widely used consumer-credit scores, and is being tested in a pilot phase with credit-card issuers. Fair Isaac said it hopes to make as many as 53 million people who don’t have credit scores more acceptable to lenders.


People without scores in most cases don’t use debt either by choice or because a negative credit event, such as a bankruptcy, foreclosure or a collection account, has shut them out of mainstream borrowing.


The new score is largely a response to banks’ desire to boost lending volumes by increasing loan originations to borrowers who otherwise wouldn’t qualify, many of whom tend to be charged more for loans. But the new yardstick will also throw a spotlight on consumers who often are deemed riskier than the rest of the population and could saddle banks with losses if they fail to make good on their loans.


The new score, which isn’t yet named, will be calculated based on consumers’ payment history with their cable, cellphone, electric and gas bills, as well as how often they change addresses and other factors, according to Fair Isaac, also known as FICO. Traditional FICO scores that lenders use in the approval or rejection process are calculated based on the information in the credit reports from the three major credit-reporting firms,Equifax Inc.,Experian PLC and TransUnion.


The new score will instead pull data from a separate database of telecommunications and utilities providers maintained by Equifax. It also will incorporate data from a LexisNexis database, including how often people change addresses, with frequent changes suggesting less stability.

We suppose this was the logical next step for Fair Isaac given that the idea of what we called the non-GAAP FICO was floated back in August of last year as a way making ineligible borrowers suddenly eligible by way of simply not counting all of the bad stuff. Here’s a recap: 

According to the WSJ, in what is a desperate attempt to boost the pool of eligible, credit-worthy mortgage recipients, Fair Isaac, the company behind the crucial FICO score that determines every consumer's credit rating, "will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency."

Apparently those measures weren’t sufficient to boost the credit profiles of many of America’s underbanked citizens so it was necessary to get more creative in order to ensure lenders could continue to feed auto and consumer loan ABS securitizations and in the end it appears as though when gaming and goal seeking the old score didn’t do the trick, the decision was made to simply create a new score based on whether or not prospective borrowers have managed to keep the lights and the gas heat on (so we assume most of Eastern Ukraine is out).

You can trust that it will only be a matter of time before these loans end up cobbled together in billion dollar ABS issues as well, and in a NIRP world where saving money costs you money, you can bet investors will be happy to take out the mezz tranches for a few hundred basis points of yield.

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Shizzmoney's picture

Just say no to debt

Burt Gummer's picture

I'm hoping I can get a zero down 100 year mortgage at 3% per annum. What do you guys think?

froze25's picture

So with the crumbing Texas economy along with this info, Texas will be the Used/repo'ed cheap car capital over the next couple of years.

nope-1004's picture

"Credit rating".  LMAO.  It's not a credit rating, like you've been told, it's a slavery index.  C'mon people, think like a bank for a moment.  You are not good to the bank unless you are a slave, and the slavery index is the only way they can judge your ability to pay.

FFS, "credit rating" is putting a positive spin on an obvious financial trap for the people.  Muppets need to be classified somehow, and Slavery Index does it all.

And without the FED blowing serial asset bubbles, credit and the slavery index would not be needed, so Fuck you FED.


813kml's picture

Just trying to squeeze yield out of a turnip, and a bunch are always falling off the truck.

TruthInSunshine's picture

Full Fractional Central Bank Nations In Terminal Death Spirals Run on Debt(TM) .

As aggregate demand and/or access to debt declines, the death spiral accelerates.

lordylord's picture

Whats wrong with taking on massive debt when it will inflate away?  Every country on Earth does this. 

mkkby's picture

Actually poor people should take on all the debt they can get.  Buy gold.  Have boating accident.  Stop making payments on debt.  Declare bankruptcy.

Works great for rich a-holes like Trump.  You can do it too.

mastersnark's picture

Obedient Slave Index is more accurate, no? The higher the number the more you are considered obedient.

new game's picture

if you can't keep a car in the driveway time to join the FSA! can't find a job w/o a car, right?

fucking low life bullshit...

froze25's picture

Whats up with the down votes I was just reading the data?  I am wrong that the Texas economy is going to hell and that they are listed as the #1 State?

sdmjake's picture

"Don't mess with Texas"

new game's picture

no worry, you got enough low life shitbags to fuck it all on your own. plus all those libs flocking in from kali, ha... texas toast? ha again.

ps i luv texas, really do...

TheReplacement's picture

Nah man.  This is to sell new cars to the unwashed masses.  It's a channel for money to flow because they know these people will spend it.  We must inflate or we'll deflate for Pete's sake.  That's my take.  I like to bake cake after I rake.

In the past month I've recieved email, snail mail, and a live person phone call from my dealership and the manufacturer practically begging me to turn in my current vehicle for a new.  They claim they are terribly short of used inventory.  This (west+japan) maker seems pretty desperate if you ask me.

TruthInSunshine's picture

Yeah, but the geniuses (/s) at the BOJ have so distorted price discovery through their INSANE monetary policy (at least a decade in the making now) that those low, low interest rates come at the expense of real estate prices artificially inflated 3x to 4x fair value (based on wages, productivity, etc.).

Japan is so FUBAR.

And now Kuroda brings Krugman in as an advisor to turbocharge their demise.

RougeUnderwriter's picture

Only if they give you the first 30 years interest only payment option - wait - isn't that what they are doing for Greece?

thecrud's picture
thecrud (not verified) Burt Gummer Apr 1, 2015 3:59 PM

I live in the projects and everyone who live or works here have BMW etc.

yrad's picture

Yes, but can you search the tranches and find an arbitrage CDS in the muck?


-The Big Short

rabbitusvomitus's picture

I busted my nuts to get an 850 FICO score and the muthafuckers gonna reward the shitbag deadbeats with a "New and Improved" FICO! I mean BULLISH!

JLee2027's picture

850 means they consider you a prime sap to make money on. It has nothing to do with income. 

BigRedRider's picture

850 FICO?  You must have gotten extra credit for spelling your name right.  Nobody gets an 850 unless you have an in with Obama.

rabbitusvomitus's picture

 You read it right, 850 FICO.

Here's how it works.

1. Go to work

2. Buy stuff you need

3. Don't buy shit you don't need

4. Pay off your car(s)

5. Pay down/off your mortgage

6. Pay all your utilities on time


8. TRY and live debt free.

9. Save, save save.


In short, do everything the exact opposite of the GUBmint (and 90% of all americans) do.

Pay cash, piss off the debt slave masters!!

thecrud's picture
thecrud (not verified) rabbitusvomitus Apr 1, 2015 4:08 PM

It use to be the way to a 850 was to not touch your credit at all.

I felt the same thing.

If you cant tell the dead beats by the car they drive how can you tell.

Seems like socialism.

You cant afford a nice car Here is a nice X5 BMW dont worry I can give you 10 years to pay and when it is not under warenty any more and you cant afford the 2000 to change spark plugs you can just quit paying for it.

As long as your cell phone is paid.


rabbitusvomitus's picture

You couldn't tell who the deadbeats were before the crash because of crazy credit expansion. Deadbeats were able to disguise themselves in nice cars and McMansions, till the bubble popped. Then the emperor had no clothes.

So now in a desperate attempt to reinflate the the credit bubble, banks will once again find a way to giveaway money to untrustworthy borrowers. 

I'm sure they're not getting any pressure from the Fed to stimulate borrowing.. nah that wouldn't happen...



gearbaby's picture

too bad you're to stupid not to game the system...which is a game of itself

Fidel Sarcastro's picture

Atta boy rabbit...same here. Total bull$hit of course. 

JLee2027's picture

I forget to make a payment and the bank called me to ask if I wanted easier payments or more money. No chit. 

GoldenGeezer's picture

A few years back I was talking to a guy that I worked with about some identity theft topic that was in the news that day. He told me that he had the best identity theft protection you could get...a 460.


Semi-employed White Guy's picture

Well it won't work anymore.  He's going to need better protection.

dicksburnt's picture

10's of millions of illegals need some help establishing credit......?   Of, so simple really - credit money system!  expand debt or die!

Semi-employed White Guy's picture

I'm still waiting for a bank to offer me a -1% interest rate credit card instead of +24%.  I'd even settle for 0%. I keep reading about ZIRP and NIRP but somehow I don't get those deals.

Thirst Mutilator's picture

Fair Isaacs, say hello to Crazy Ivans... It's all fun & games until the counterfeitting press stops... Then ~ BACK TO THE GHETTO Lucy!

Duc888's picture




Fuck that.  I want my -550 credit raping....errrrr....rating.



venturen's picture

Wow a lot of people took car loans to buy stocks!

HonkyShogun's picture
HonkyShogun (not verified) Apr 1, 2015 2:01 PM

This will end well.

chunga's picture

don't worry, the banks all passed their FAKE-O stress tests with flying colors

Bam_Man's picture

23.90% APR and 130% LTV?!?


These are just "Repos Waiting to Happen".

ebworthen's picture

Same old game - lend to people who can't pay it back, make the commission on the sale, then get bailed out when the loans go tits up. 

This should not be a surprise - no one from the 2008 debacle is in jail or even charged, and they're blowing a much bigger bubble using the same stratagem.  BTW - Where is Jon Corzine?

armageddon addahere's picture

New twist - make loans they can't pay so they can buy things they don't need with money they don't have to impress people they don't like.

It's the American Way!

ejmoosa's picture

There is a constant push for "affordable" housing.  My own community is doing the same, chained to CBDGs.  And soon my community will resemble every other sub-par community.

Osmium's picture

Cardboard boxes are affordable.

Uber Vandal's picture

For now, Osmium...... For now.

Mr. Bones's picture

Buy refrigerator on credit.  Then paint the box up real purdy like and sell it for say... 300k before offloading that loan for 250k then buy stocks.  That's the plan for summer.

The plan for winter is to buy one of those over under ovens and repeat the process.


This financial advice is so valuable you should be paying me. /s



swmnguy's picture

See, the problem is that people who already can't make ends meet don't spend enough money they haven't earned yet.  Fix that issue, and everything's both hunky and dory.  Looks like we got the right people on the job.

Seasmoke's picture

Anyway I can bet AGAINST each of these car buyers making without a RePo.

swmnguy's picture

If there's such a shortage of debt to sell in the secondary market, when do they start splitting to proceeds with us, the producers of debt?

Bell's 2 hearted's picture

"the decision was made to simply create a new score based on whether or not prospective borrowers have managed to keep the lights and the gas heat on"

but but i've been running an extension cord to my neighbor's outdoor outlet