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Subprime Auto Goes Full-Retard: Lender Sells $154 Million ABS Deal Backed By Loans To Borrowers With No Credit

Tyler Durden's picture




 

If you frequent these pages, you may remember Skopos Financial, the subprime auto lender that’s been busy packaging all manner of questionable auto loans and offloading credit risk to investors via some of what can only be described as the most noxious looking ABS deals in the history of securitization. 

Earlier this year for instance, Skopos sold some $150 million worth of paper backed by a collateral pool wherein 20 percent of the loans were made to borrowers with a credit score ranging from 351 to 500. In other words, a fifth of the loans backing the deal are to the least creditworthy borrowers in the country. Here’s a look at the details: 

This comes against a backdrop of rising US auto sales (see the numbers for October, out earlier today) and it's not difficult to explain the gains. Just take a look at the following data from Experian on the lunatic loan terms being extended to borrowers (from Q1):

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

Or, visually, here is America's $1.1 trillion auto loan bubble:

The amusing thing about Skopos is that the management team is essentially just a collection of Santander Consumer veterans.

In their own words:

In 2011, Skopos Financial opened its doors with one goal in mind making tough, deep subprime auto loans easier to finance for dealers.

 

Leveraging our sophisticated, patented iLender technology and visionary management team, Skopos provides a streamlined process for franchise dealers to finance customers with low credit scores.

  

As an indirect auto lender, Skopos offers solutions for car buyers with no credit, low FICO scores, or a previous bankruptcy, repossession or foreclosure. And the best part is the speed. Skopos' dealers enjoy fast underwriting, fast approvals and fast funding.

Yes, the "best part is speed." We suppose the process is quite efficient considering there appear to be no underwriting standards whatsoever. 

As for the "visionary" management team, have a look at the following profiles which seem to indicate that at least for some industry veterans, Santander Consumer isn’t quite subprime-y enough (note that there’s a Countrywide link in there as well for good measure):

Of course we all know who was named to Santander Consumer's board earlier this year:

Well, don't look now, but Skopos is at it again, and this time, 14% of the loans "backing" a $154 million ABS deal were made to borrowers with no credit score. Here's Bloomberg

Skopos Financial, a deep-subprime auto finance company based in Irving, Texas, is packaging $154 million of loans made to borrowers with weak credit -- and some without a credit score -- into bonds rated investment grade.

 

More than three-quarters of the loans backing the deal are to borrowers with credit scores under 600 and another 14 percent have no credit score at all, according to a pre-sale report by Kroll Bond Rating Agency. That would place the bulk of the obligations well below what’s typically considered good credit.

 

The offering is the latest prepared by privately backed auto lenders that offload their risk into securities bought by institutional investors. Skopos, which is backed by Lee Equity Partners LLC, the New York-based private equity firm started by Thomas H. Lee, has only been in business since 2012.

 

About two-thirds of the loans being packaged into Skopos’ securitization have been taken out by borrowers who are financing used cars. With the loan maturities stretched to almost six years on average, borrowers may be at greater risk of owing more than their cars will be worth if they try to sell them later.

 

As a result of these risks, investors in the deal are being offered a big cushion against defaults. The securities, marketed by Citigroup Inc., are expected to be rated as high as AA, according to Kroll. Investors who buy them would be protected against the first 48 percent of losses. The “base case” cumulative net loss expectation is 21 percent to 23 percent, the rating company said.

Better still, half of the loans in the collateral pool were extended to borrowers in Texas where, you're reminded, households are feeling the pinch from layoffs tied to slumping crude prices (the completely inexplicable September state employment print notwithstanding): 

Nearly half of the borrowers whose debt is being financed in this deal are from Texas. Earlier this year, Skopos issued an unrated securitization with the biggest concentration of borrowers also in Texas, but that comprised only 15 percent of the loan pool.

 

Despite the high number of loans to Texas borrowers, only a handful were in energy-production regions, making the exposure to the oil industry’s downturn “insignificant,” Kroll wrote in its report.

Yes, "insignificant." So despite the fact that half of this $154 million deal is accounted for by borrowers from Texas, we should draw no parallel between desperate, uncreditworthy households and the imperiled state of US oil producers. Got it. 

What the above shows is that we've now reached a point where borrowers can get a 6-year loan for a used car with no credit score, meaning there's virtually i) no chance they're going to be able to make all of the payments, and ii) even if they do, they'll be underwater within a couple of years, if not a couple of months. 

How much risk is being embedded within the financial system as a result of this you ask? Well, that's difficult to nail down, but auto loan-backed ABS supply is set to come in at around $125 billion this year, up 25%:

And here's Nomura's take on the dynamic dominating the market:

"The significantly weaker performance in the subprime auto sector is being driven by an increase in issuance from the lesser established issuers."


Smaller, newer bond issuers fueled 37 percent of the sales of subprime bonds last year, up from 27 percent in the previous year.


We'll close with a quote from Comptroller of the Currency Thomas Curry:

"This reminds me of what happened in mortgage-backed securities in the run-up to the crisis."

 

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Tue, 11/03/2015 - 16:42 | 6745541 Tom Servo
Tom Servo's picture

Then put a short position against that CDO "innovative financial product"?

 

Tue, 11/03/2015 - 16:47 | 6745580 Groundhog Day
Groundhog Day's picture

beaks where the hell is beaks....

no wait

fabrice where the hell is the fabulous "FAB" Fabrice

The ghost of goldmans past

Tue, 11/03/2015 - 18:05 | 6746038 RafterManFMJ
RafterManFMJ's picture

Bought a new CRV on Monday, trading our '05 Element.

They were desperate to sell, and I had something happen that's never happened before; a commercial bank, Wells Fargo, was able to beat my credit union. CU was at 2.6 on a 72 month loan (come on hyperinflation!) while WF offered 2.25 on the 72.

Trade started at 3K and eventually got 4900 for it. Desperate to sell. Salesmen still calling and texting.

Tue, 11/03/2015 - 18:37 | 6746165 nuclearsquid
nuclearsquid's picture

I am going to be a contrarian here.  First, in the subprime sector, FICO is not much more correlated with default probability than a coin flip.  These companies build scorecards much better than FICO, and a lot of them specifically go after the no-FICO consumer because they are usually overlooked and pay better than the ones that have been around the block.  I would take a no-FICO with a multi-year employement history and stable address over a 650 FICO that moves every year and can't hold down the same job.  Just saying.

 

Tue, 11/03/2015 - 19:07 | 6746292 two hoots
two hoots's picture

If this is what's keeping the auto makers going...?

Tue, 11/03/2015 - 20:48 | 6746680 johngaltfla
johngaltfla's picture

Personally I think this is awesome. It means I can now start shitting into fur lined boxes and calling it valuable stuff and selling it for $1000 per lb claiming it will give you a more viable return than gold or silver.

And on double chili cheeseburger night that goes up to $1400 per lb. Let's all get rich! Shit for profits, it's the Americon Way!!!!!

Tue, 11/03/2015 - 16:47 | 6745581 Groundhog Day
Groundhog Day's picture

beaks where the hell is beaks....

no wait

fabrice where the hell is the fabulous "FAB" Fabrice

The ghost of goldmans past

Tue, 11/03/2015 - 16:50 | 6745602 centerline
centerline's picture

deja vu

Tue, 11/03/2015 - 19:14 | 6746322 FlSapo
FlSapo's picture

You can say that again.

Tue, 11/03/2015 - 16:51 | 6745603 I MISS KUDLOW
I MISS KUDLOW's picture

yeah just got notice the govt is buying my RAM for recall issues, jut another american piece of garbage, and i cant afford to get an equilvent vehicle so its buy and older one or go get a fresh loan,,,,,,,i havent had any success for 30 years the Chevys we had in the 80's,,,the earliest expedition from ford was more garbage now this with the RAM,,,,,,,if i hadnt had camrys in the 90's to save us we would be on a bus,,,,,,anyone know of a year and model vehicle that actually runs

Tue, 11/03/2015 - 16:55 | 6745632 I MISS KUDLOW
I MISS KUDLOW's picture

can the govt bailout more people who dont know how to build a car like gm, dodge that way we can all pay another double for our autos and just get new cars every five years

Tue, 11/03/2015 - 16:55 | 6745633 I MISS KUDLOW
I MISS KUDLOW's picture

can the govt bailout more people who dont know how to build a car like gm, dodge that way we can all pay another double for our autos and just get new cars every five years

Tue, 11/03/2015 - 16:56 | 6745636 CrazyCooter
CrazyCooter's picture

Late 70 model Ford Ranger (HiBoy). They got a cauberator and the after market of parts is vast (as is junkyard inventory). Easy enough to work on if you have the motivation to do it.

Gas mileage may not be the best, but it really isn't that bad if you keep it running right and drive it like grandpa.

I was actually saving to buy and retrofit one, but I got a can't-pass-up deal on an older but very low mileage diesel Ford.

Regards,

Cooter

Tue, 11/03/2015 - 17:06 | 6745683 centerline
centerline's picture

GM/Ford let me down in the 80's & 90's.  Honda did good for awhile but then proceeded to screw the pooch in the early 2000's.  Especially when they tried to do thier own transmissions.  Really fucked over many of thier customers (including me) by installing flawed transmissions as replacements for the flawed transmissions that failed... just squeaking people out of thier warranties.  Honda lost my business forever on that move.  Been driving newer Mitsubishi's since 2009 or so.  Yeah, lots of plastic and nothing fancy.  Can't say they are inspiring to drive.  But, they are inexpensive and so far have done me well.  Newer ones even have 10 year/100,000 mile warranties. 

Tue, 11/03/2015 - 18:17 | 6746079 chomu
chomu's picture

Just cold call the OTC desk at every TBTF bank on the street. Im sure some wiener will sell you some CDS on this POS

Tue, 11/03/2015 - 16:43 | 6745545 ParkAveFlasher
ParkAveFlasher's picture

Can I get my Escalade with a marble dashboard?

Tue, 11/03/2015 - 16:49 | 6745592 centerline
centerline's picture

Yes.  But you will need to take it to dealer every 3,000 miles to have the blinker fluid changed out.

Tue, 11/03/2015 - 16:44 | 6745554 Rainman
Rainman's picture

See ? ...  it just doesn't matter ..... slam that FICO to ZERO, bitchez !

Tue, 11/03/2015 - 16:44 | 6745555 taketheredpill
taketheredpill's picture

Kroll?

Tue, 11/03/2015 - 16:45 | 6745561 cordial savage
cordial savage's picture

Nick?

Tue, 11/03/2015 - 16:49 | 6745590 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

Saint?

Tue, 11/03/2015 - 16:45 | 6745558 cordial savage
cordial savage's picture

Who's the woman?

Tue, 11/03/2015 - 16:51 | 6745604 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

 

 

Blythe Masters of JPM fame of yesteryear.  Former head of Commodities.

The silver slamming witch that controlled the flying monkey hammers.

Tue, 11/03/2015 - 16:54 | 6745626 cordial savage
cordial savage's picture

That's what I thought.  Thanks.  Now she's dabbling in subprime lending and blockchain.  Seems like a logical progression.

Tue, 11/03/2015 - 17:06 | 6745694 stopcpdotcom
Tue, 11/03/2015 - 18:14 | 6746065 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

Yeah, forgot about that golden(fleece) oldie.  Went to the link, and part of it is been pulled. 

Tue, 11/03/2015 - 16:46 | 6745568 Bill of Rights
Bill of Rights's picture

This can only end of course  in pain. The REPO business will be booming in the years forward.

Tue, 11/03/2015 - 18:07 | 6746043 ultimate warrior
ultimate warrior's picture

I can't wait for this bubble to pop. I'm waiting to upgrade my 04 Impala (paid for in cash in 08). Their should be plenty of amazing deals on used cars in a year or two for anyone that actually has money. 

Tue, 11/03/2015 - 16:46 | 6745574 SethDealer
SethDealer's picture

loans are to wetbacks in texas

Tue, 11/03/2015 - 16:46 | 6745575 Brooks_Orpington
Brooks_Orpington's picture

You never go full retard.

Tue, 11/03/2015 - 17:04 | 6745674 Ghost of Robotrader
Ghost of Robotrader's picture

Damn. Shoulda read before posting.

Tue, 11/03/2015 - 16:47 | 6745583 taketheredpill
taketheredpill's picture

I assume Kroll's fees on the issue were un-insignificant.  Kroll is the new Fitch, Bitch.

 

Tue, 11/03/2015 - 16:54 | 6745624 Billy Sol Estes
Billy Sol Estes's picture

If your credit score is 351, buying a car is the least of your worries.

Tue, 11/03/2015 - 16:56 | 6745637 centerline
centerline's picture

At 351 you might be living in the car. 

Tue, 11/03/2015 - 17:06 | 6745697 Seasmoke
Seasmoke's picture

Are they allowed to repo the car, if you are living in it down by the River ???

Tue, 11/03/2015 - 17:15 | 6745715 centerline
centerline's picture

Is a solid question for sure.  And, if you pick a new spot each night the repo guy probably won't ever find you.

 

funny story (off topic though)... when I was 19, I had a black 82' Z28.  Went to visit a friend who was a few hours drive away.  Left late at night and figured I would sleep in my car closer to my destination.  Pulled over at some abandoned lot next to one of those old-folks retirement trailer parks (figured it was safe), let the seat down all the way and went to sleep.  Woke up under a blinding white light.  There was about 6 police cruisers with surrounding my car with thier highbeams on.  And about 6 cops with flashlights aimed in my car.  All of them with guns drawn.  Talk about a fucked up way to be woken up.  Damn.  The old folks must have been freaked out by a black sports car pulling up and going dark.  Cops laughed after I recovered from nearly having a heart attack.  Told me to go camp in a big parking lot instead.  lol.  live and learn.

Tue, 11/03/2015 - 17:23 | 6745791 83_vf_1100_c
83_vf_1100_c's picture

  You cut a loan to a subprimer you install GPS tracking and a kill switch. They are not that hard to repo.

Tue, 11/03/2015 - 17:28 | 6745813 centerline
centerline's picture

Wow.  Not surprised though.  Lo jack has been around a long time.  The cost to pull this off now is probably pretty cheap.  And half the tech is probably already in the car anyhow.

Tue, 11/03/2015 - 17:08 | 6745710 Mentaliusanything
Mentaliusanything's picture

Near dead, wheelchair bound crackheads with 9 (known) dependent children have scores at or below 450... What is going on?

Mutually assured destruction is more than can be expected.

Tue, 11/03/2015 - 20:20 | 6746571 Offthebeach
Offthebeach's picture

Having a Fedgov/state EBT card coupled with a Section 8 address is good for 550. A fed disability puts you in the low 600's

Free Shit Army be a secure army. Not like working trash, those MF's can go tits up faster then you can say trailer park.

Green Shoots, Bary Obama has got ykur back!

Tue, 11/03/2015 - 16:54 | 6745625 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

 

 

"This reminds me of what happened in mortgage-backed securities in the run-up to the crisis."

 

I'd be concerned if I weren't so confident that it's different this time.  The news told me so.

Tue, 11/03/2015 - 17:01 | 6745659 Ghost of Robotrader
Ghost of Robotrader's picture

Did I beat buzz to the point.

Never go full retard.

We saw what CDO subprime did in economy version 1.0

At least you knew where to find the collateral in housing ABS

Tue, 11/03/2015 - 17:00 | 6745661 PhiBetaZappa
PhiBetaZappa's picture

Long repo tow trucks.

Tue, 11/03/2015 - 17:02 | 6745668 CHoward
CHoward's picture

PT Barnum was right, "there is a fool born every minute" (which by the way is the motto of Elon Musk).  This is beyond full retard - it's literally insane.

Tue, 11/03/2015 - 17:04 | 6745679 taopraxis
taopraxis's picture

America...land of the "rent-to-own" people.

Tue, 11/03/2015 - 17:09 | 6745706 Ghost of Robotrader
Ghost of Robotrader's picture

Where is incremental demand going to come from if not subprime? If it really is time to go full retard then I guess we have to lol

Tue, 11/03/2015 - 17:20 | 6745777 Seasmoke
Seasmoke's picture

Ha ha. True story. My 8yo just saw a commercial for flexshopper. (A lease to own company I suppose as I never heard of them.)

Anyway he asks me why the black girl is paying $22 a week for a tablet when she could just pay $200 for one. I said what. As I had no clue what he was talking about at the time. Then he says in a black girl accent I pay $22 a week because i has no money !!!!!! Funniest thing I ever seen. But really smart to catch it too .... I was impressed. I guess I rub off on them without even sitting down and discussing things with them yet (too young) Maybe they have a chance. I didn't wake up until I was 40. They are 32 years ahead of me !!!!

Tue, 11/03/2015 - 17:07 | 6745700 E.F. Mutton
E.F. Mutton's picture

Whatever happened to the guy doing hair extension loans?  Is he on the board at Goldman Sachs yet?

Tue, 11/03/2015 - 17:41 | 6745890 BlindMonkey
BlindMonkey's picture

I think that dude is working on the Trump 2016 campaign.

Tue, 11/03/2015 - 17:11 | 6745726 Jtrillian
Tue, 11/03/2015 - 17:12 | 6745731 Dig Deeper1
Dig Deeper1's picture

Baylor and SMU.  just good xtian boys doing jesus's work.  the good lord would never ruin the greatest game of their life?

Tue, 11/03/2015 - 17:12 | 6745737 Iceobar
Iceobar's picture

Anyone know the wherabouts of Linda Green?? I don't want any problems getting the title to that repo......

Tue, 11/03/2015 - 17:20 | 6745776 scubapro
scubapro's picture

 

 

santander consumer   has lost about 25% of its mkt cap in the past few days  SC

Sun, 11/15/2015 - 13:38 | 6796218 herkomilchen
herkomilchen's picture

Not related to auto-loan portfolio.  Bubble intact there.

Tue, 11/03/2015 - 17:22 | 6745786 yogibear
yogibear's picture

Before they repo the car take to a demolition derby.

Tue, 11/03/2015 - 17:31 | 6745835 1stepcloser
1stepcloser's picture

Joe Isuzu rated it triple AAA

Tue, 11/03/2015 - 17:37 | 6745878 BlindMonkey
BlindMonkey's picture

Did Bagdad Bob give you that tip???   That dude is solid...

Tue, 11/03/2015 - 17:31 | 6745839 Spungo
Spungo's picture

Thank god cars are appreciating assets. 

Tue, 11/03/2015 - 17:36 | 6745869 BlindMonkey
BlindMonkey's picture

I missed the part where they named names on who was buying this shit.   Investment grade, that sounds to me like CALPERS is the target.  

 

Protip: if you have to look inside the box to determine if it is Schrodinger's feces, it ain't investment grade.

Tue, 11/03/2015 - 17:41 | 6745894 centerline
centerline's picture

+1.  Pension funds are for sure the ones lined up as bagholders.  At the same time, I can smell a massive pension fund bailout coming up... at the taxpayer expense of course.  Bank nationalizations, restructuring, and perhaps even bail-ins.  The big question will be how much of the screwing will come from the federal, state or local levels. 

Tue, 11/03/2015 - 18:03 | 6746027 BandGap
BandGap's picture

That smell you smell is known as "Chicago".

Tue, 11/03/2015 - 18:40 | 6746172 ihatebarkingdogs
ihatebarkingdogs's picture

So when all these late model cars come back into the market through reposession auctions, is there going to be a "Blackrock" auto rental agency snapping them up? One won't be able to out-bid, or even be able to get in to one of these auctions to pursue a good deal on a used car. But you'll be able to Rent to Own from Blackrock Auto.

Tue, 11/03/2015 - 19:15 | 6746324 Atomizer
Atomizer's picture

Sign and drive debt society. 

Tue, 11/03/2015 - 19:19 | 6746342 Berspankme
Berspankme's picture

Insult to retarded people

Tue, 11/03/2015 - 23:05 | 6747118 bookofenoch
bookofenoch's picture

Weep for the degradation of my once mighty country. Debter Nation...

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