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Subprime Auto Lending Soars As Fed Report Shows Spike In Loans To Underqualified Borrowers
When last we checked in on America’s auto loan bubble (which recently ballooned past the $1 trillion mark) the “visionary” ex-Santander execs over at Skopos Financial had just finished selling some $154 million in paper backed by a collateral pool wherein 75% of the loans were made to borrowers with credit scores less than 600.
14% of the loans were made to borrowers with no credit score at all.
That deal followed a $150 million securitization the company sold earlier this year in which a fifth of the borrowers had FICOs between 351 and 500.
What this represents is the resurrection of the infamous originate to sell model that was instrumental in exacerbating the housing bubble. Put simply: if you can offload the credit risk to investors, you don’t really care who you’re loaning money to. It’s moral hazard at its finest and it’s enabled by Wall Street’s securitization machine.
Skopos’ latest abomination of an ABS deal came just weeks after Comptroller of the Currency Thomas Curry warned that what's happening in the auto loan market “reminds [him] of what happened in mortgage-backed securities in the run-up to the crisis.”
Obviously the market isn't nearly as large, but auto loan-backed ABS supply is expected to grow 25% this year. Here's an up to date look at consumer ABS supply:
Auto loan-backed issuance will only grow as the bubble expands ... and boy oh boy, is it expanding:
Of course in order to keep the US car sales "miracle" alive and thus perpetuate the ridiculous myth of an American auto renaissance, lenders will need to continue to lower their underwriting standards. After all, the pool of creditworthy borrowers is finite and so in order to expand it, you need to make inelligible borrowers eligible and that means the proliferation of subprime lending.
In what amounts to evidence that the subprime auto problem is indeed growing, The New York Fed's Quarterly Report on Household Debt and Credit (out today) shows that lenders extended more than $110 billion in auto loans to borrowers with credit scores below 660 over the past six months alone. You can view that figure in context by taking a look at the following chart:
But don't worry, because Phil Lebeau and Experian's perma-auto-loan bull and senior director of automotive finance Melinda Zabritski will tell you that talk of a subprime auto loan bubble is nonsense (from a CNBC interview earlier this month):
Zabritski: "I don't see a bubble in subprime loans. This is a very steady market in terms of loans to high-risk borrowers."
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NINJA 7 year auto loans.
Oh dear......
Say, there's this little village way up north in Norway that likes this kinda paper and ....
A billion here, a billion there, before you know it you're talking about real money.
Hell I'm applying for a loan soon, if they can get it I can too! Sports hatch, later install turbo. bitchez gold colored too! lol
securitizing FICO of 350 debt needs to be called what it is....FRAUD.
I think you meant "social justice". after all, credit scores are racist
Equality means we ALL get a loan, right? Repayment is a completely different issue.
Exactly knukles; that chart looks like housing 2007; this time it's housing, and student loan + auto debt!
Bubblicious trifecta! CALPERS has to be in there buying that stuff along with Chicago pension funds.
Just tell us when it will all collapse. I'm going to be taxed out of house and home by Illegalcare in the near future. I can't afford it on any long-term scenario. Things have to collapse soon, right?
I have been saying it has to come down soon for 5 years.
That's not a bubble, it's a singularity
30 year auto financing with 36 month warranty.
Yea bitchez. Sign and drive a channel stuffed vehicle. President Uncle Tom Kenyan fuck can explain the economy is contained under derivatives contracts for slave labor control mechanism's at 2% returns.
Let the narcissist dig a deeper hole of lies.
Obama just made a SHOCKING admission! we're training ISIL forces ...
Yeah, that ISIL admission was made about 4 months ago but---it was "talked down" by his handlers and the presstitutes needed their paychecks. Seems that He'd
been doing it for so long that he forgot it's not common knowledge. And how about our brave American Press !! Aren't we just so proud of those guys? I wonder if their parents and other family members know what their kids have become since those kids were born lacking a spine.
No doubt, quickly Securitized and sold-off to Wall Street then to some Dopey Hedge Fund....
Paging Linda Green...
This is going to end real well - NOT....................
14% of the loans were made to borrowers with no credit score at all.
Jayvees!
anybody notice gm and dodge led the list of worst cars and trucks manufactured.
Detroit Auto Workers Busted on the Job Drinking ...
A Chrysler Group LLC employee inspects an engine on the production ... scrutiny since solar-panel maker Solyndra LLC failed after getting about $527 million in U.S. loan guarantees.
chrysler - Bloomberg
more car repo shows coming up next summer, stay tuned...
I see them all the time. The "Me-Toos".. the Joneses who cannot truly afford a brand new car but will, just so they would be seen, in one. Losers driving the cheapest car in America..the cartoonish, clown looking Nissan Versa sedan. They are a dime a dozen, here in LA (on 7yr/84mo terms).
My credit union is a God send. With my FICO of 828 (my next auto payment due as of this writing...7/2016), I'd never consider a car dealer's financing arm. Btw, I drive a 6sp manual 2014 Mazda6 Touring (no down, cash kept in stock market " rolling the dice"). The sportiest, best handling, fun to drive "family sedan" for the money..and very thrifty on gas (gets 38mpg combined 65%fwy/35% hwy Los Angeles driving).
Wanted that mazda touring turbo, had to settle for a older mazdaspeed...
The new 2.5 Turbo SkyActiv just came out (250hp/310 lb tq version for 2016 CX-9)..so there's your chance for a new Mazdaspeed (surely, my next 6MT Mazda ride as well).
The bank can always repossess the car on payment default. Then someone can buy it up cheap by paying all cash at auction. Then the cops (equitable sharing)/feds can use Civil Asset Forfeiture and seize the car. Car goes back to the auction lot ... rinse and repeat. Endless benefits for everyone.
From my earlier post from the Caterpillar article about software turning of engines of people or corporations missing payments.
I really think I'm on to something here. Alphabet are you listening.
Perhaps all the car companies can do the same thing except instead of turning the engine off, the software could just drive the vehicle back to the dealership. At least they wouldn't have to pay the repoman after "Joe Six pack" misses payment 6 7 and 8 of 96, which would help offset the 20% depreciation on that $70,000 truck.
I bet the future trend will be to not even sell engines in cars, but rather lease the engines. This is what the airplane renters already mostly do. Lease their engines seperately.
Imagine the conflicts when there was a default on one but not the other.
I doubt engine leasing would be permitted, because third-party engine manufacturer/lessors would emerge with better engines. Some kid in Montana would build a better engine with his 3-D printer. The current auto manufacturers would lose control over the buyer.
LOL, If fog-a-mirror lending didn't work the first time it will surely work the second time around.
Just like more debt helps a debt problem.
Sure, a patient has cancer, just inject them with more cancer cells to cure them.
I think i'll keep driving my fleet, the newest car being well over 20 years old. That has fuel consumption within a stone's throw of the new emmissions-control-laden junk being sold on subprime loans. Put the savings into silver for a time when the Ponzi collapses.