Biggest Subprime Auto Lender Skipped Income Verification On 92% Of Auto Loans

Tyler Durden's picture

We first introduced readers to the "New Century of auto finance" (aka "Santander Consumer USA") several years ago when we first took note of their aggressive auto ABS facilities.  In fact, here is a quick look at one of their ABS deals from 2015 which sported an average FICO of 595, LTV of 110%, APR of 16.2% and a term of 70 months. 

Santander is the largest subprime auto lender in the country with more than $15 billion in outstanding loans to underqualified buyers. Not surprisingly, the company also dominates the subprime auto ABS space accounting for a disproportionate share of YTD issuance. We noted that Santander’s first deal of 2015 (SDART 2015-1) carried an average FICO of 595, an average APR of 16.20%, and an average term of 70 months…



And if that isn't enough evidence to convince you that today's auto sales are nothing more than another subprime, debt-fueled bubble then perhaps you should also take note of today's Bloomberg article that highlights the fact that Santander USA apparently only took the time to verify income on roughly 8% of the loans they subsequently dumped into ABS facilities and sold off pension and insurance companies. 

Santander Consumer USA Holdings Inc., one of the biggest subprime auto finance companies, verified income on just 8 percent of borrowers whose loans it recently bundled into bonds, according to Moody’s Investors Service.


The low level of due diligence on applicants compares with 64 percent for loans in a recent securitization sold by General Motors Financial Co.’s AmeriCredit unit. The lack of checks may be one factor in explaining higher loan losses experienced by Santander Consumer in bond deals that it has sold in recent years, Moody’s analysts Jody Shenn and Nick Monzillo wrote in a May 17 report, which reviewed data required of asset-backed bond issuers that’s recently been made available.


Limited verification of loan applicants’ stated incomes and employment “creates more uncertainty around whether borrowers will be able to afford their monthly payments, which becomes particularly important if they have poor credit records and risky loan terms,” the analysts wrote.

Andrew Kang, Santander Consumer’s treasurer, acknowledged the minimal level of income verification and said the company’s practice has been consistent over time even if it’s lower than levels reported among competitors.

Meanwhile, as we pointed out last week (see "UBS Hints At Rampant Auto Lending Fraud; 'It’s Not Just Smoke And Mirrors Anymore'"), this news comes just as there is growing concern among auto ABS investors that consumers, auto dealers and/or banks have been going beyond simply relaxing underwriting standards and have instead been forced to commit outright fraud in order to attract that incremental auto volume growth.  As UBS Strategist Matthew Mish told Bloomberg, “something is definitely going on under the’s not just smoke and mirrors anymore.”

The evidence is growing. First, the explosion of technology makes gaining access to information to improve credit scores very simple. Internet searches for 'credit score' are at record levels. Second, our survey finds 21% of auto loan borrowers admitted to some form of inaccuracy in their loan applications. Third, there is growing concern reported among auto lenders around fraud, which is the extreme case of this behavior.


Overall, the explosion and adoption of technology makes gaining access to "proven" methods for improving credit scores extremely simple. To this point, the popularity of internet searches for "credit score" has been rising consistently and is near peak post-crisis levels (Figure 7). Similarly, our survey finds that 21% of auto loan borrowers admitted to some inaccuracy in their application for non-mortgage related debt (auto, student or credit card loan). More concerning, this trend may be systemic as 29% of other consumer loan (i.e., student loan, credit card) borrowers acknowledged some form of inaccuracy in their applications (Figure 8).



All of which helps explain those surging delinquencies....



...and loss severities in ABS structures...



...and what increasingly seems to be a long-term trend in SC's stock.



All great signs of a "plateau."

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Alfred's picture

His name was Seth Rich

SilverRoofer's picture

That was Mighty White of them to do that

Lets_Eat_Ben's picture

Don't worry. It'll be contained to subprime

BuddyEffed's picture

Skipped verification?
Those must be mighty deep pockets indeed.
Is a CB at the bottom of those pockets?
If not now, will soon be is my guess.
Down the balance sheet hole with them!

max2205's picture

GMAC ALLY , they never die 

back to basics's picture

What a clown show everything has become 

swmnguy's picture

Guessing all the debt has been collateralized and commoditized, sorted into tranches (almost all AAAA, of course), and sold off to investors seeking market-beating return in a ZIRP environment.

So, you know, pension funds and long-term capital investment funds, like large corporations and local units of government.  I wonder if Jefferson County, Alabama, learned anything a while ago that came in handy recently.

No doubt all of the loans were underwritten by Linda Green.

Croesus's picture

Grab your popcorn, hide the wife & kids, and sit back, we're in for one hell of a show.

peopledontwanttruth's picture

Yes I agree and believe it's all coming from the cars, housing, derivatives, CC defaults to student loans, etc... will ALL hit at once.

Stroke's picture

Is Angello Mozillo back from retirement?'s picture

His name IS Seth Rich.  He didn't change his name after his death. 

IridiumRebel's picture

I used to work for DriveTime.
Santander was our lender:
All folks needed was a signature.

We are fucked,

peopledontwanttruth's picture

Fords catchy phrase
Sign and Drive. LOL. They all were doing it. Seen some mortgage officer years back get a loan for a dead guy. Kid you NOT

DeathMerchant's picture

"$99 and a paycheck stub and we'll send you home tonight in this beauty right here"

peopledontwanttruth's picture

They're begging people to take them off their lotS. Giving cash back up to 10k. It's not much left of the can

WillyGroper's picture

got snail mail for a ford today.

they all quit sending return postage paid envelopes.

didn't like what i sent back.

runswithscissors's picture

Loaning money to people who will NEVER pay it back....on a vehicle that loses 50% of its value the moment it drives off the lot...what could possibly go wrong?

peopledontwanttruth's picture

I'm sure we're going to find out really soon but think it will have an ending like running with scissors. No harm intended I like your sign on name

CJgipper's picture

absolutely nothing.  I'm needing a new truck AND a new van for the wife.

karenm's picture

No, anyone who bought a new car the past 3-4 years is fucked. Those not stupid enough to do so will buy near new anything for 90% off.

sonya55's picture

I Leased $260 a month for a $23,000 SUV lost my job give suv back no more payment.

Hello $60 a month Bus Pass.

peopledontwanttruth's picture

The next follow up article will say

Biggest Subprime Auto Lender Skipped TOWN

NurseRatched's picture

Santander is Spanish for "Too Big to Fail."

Confucious 222's picture

Niggaz wid Attitude don't pay BILLS my man

HRH Feant2's picture

Liar loans for cars? What could go wrong?

asteroids's picture

SAN takes cheap money and (stupidly) lends it out. This causes distortions in the market. Expect really cheap prices on repos somewhere down the line and "reversion to the mean" kicks in.

trillion_dollar_deficit's picture

Mind boggles at the avg LTV. Good lord people are so fucking stoopit. 

MarkD's picture

A soccor mom can't pull up to the game in a shitbox.

DeathMerchant's picture

The sleaziest business in existence.

NidStyles's picture

That would be banking in general. Even porn directors are cleaner, even though they come from the same genetic stock.

VWAndy's picture

 BS 8% my ass.

itstippy's picture

They verify the 8% that the know will pass.  Sure enough, 99% of incomes verified turn out to be accurate.  They plug that figure into their "model" and extrapolate a 99% accuracy rate on income honesty.  This enables them to get a higher investment grade rating for their shitbonds from the ratings agencies.  The higher rating makes them meet the stringent standards for pension funds, etc. to invest in.

I had a neighbor who drove truck for a big company.  He was "randomly" drug tested three times in three months.  He complained to his boss, "Why do you keep testing me?  You know I'm clean."  His boss replied, "Exactly, Jerry."  They knew he'd pass the piss test and that other drivers wouldn't, and they were required to randomly test their drivers for insurance purposes, so they kept on testing Jerry.

VWAndy's picture

 Did they give him a raise? Maybe a newer truck?

mayhem_korner's picture

Divide FICO score by the LTV and you'll get what I call the Hertz Index.  Anything below 700 will get repo'd and be on a Hertz lot in 12 mos.

natxlaw's picture

you think it will take that long

Hohum's picture

You're a tease, Blythe.

Miss Informed's picture

That's what repo is for. Soon there will be self driving cars that just drive back to the lot in case of default.

max2205's picture

Hoping for liar loans on houses again....

Chipped ham's picture

Somehow the fan will miss the shit. 

SillySalesmanQuestion's picture

I wonder how many "Susan Green's" are employed at these finance companies?

F1le's picture

Ive been shorting SC for a while made some money already

Iconoclast421's picture

$15 billion is chump change. The Fed can print that before morning coffee.

Benito_Camela's picture

Applied for a lease not too long ago, they asked me my income, didn't attempt to verify. On a lease I really don't know why  the f*ck it would matter, but whatever. 92% sounds about right. 

pitz's picture

They don't call it Satandar for nothing, now do they....

Aubiekong's picture

Can you imagine being the only obama voter to look down your section 8 rental street and not to be driving a new Escalade because you are one of the 8% who got their reported income verified.  I bet he feels like shit...

aliens is here's picture

Who killed Seth Rich? Did Killery ordered the hit?