Alan Zibel and Annamaria Andriotis of the Wall Street Journal (subscription required) report that consumer loans to borrowers with bad credit, including those for cars and light trucks, are now approaching 40% of loans issued, the highest percentage since the start of the financial crisis in 2007-08.
Almost four of every 10 loans for autos, credit cards and personal borrowing in the U.S. went to subprime customers during the first 11 months of 2014, according to data compiled for The Wall Street Journal by credit-reporting firm Equifax.
That amounted to more than 50 million consumer loans and cards totaling more than $189 billion, the highest levels since 2007, when subprime loans represented 41% of consumer lending outside of home mortgages. Equifax defines subprime borrowers as those with a credit score below 640 on a scale that tops out at 850.
The latest Q2 2014 data from Experian was released this week, and key metrics like repossessions, loan delinquencies and outstanding balances have all seen increases.
In this year’s red hot new car market, the Honda Accord and CR-V have apparently captured the top spot in both new car and SUV retail sales through the first half of 2014, according to Polk registration data. But John Mendel, Honda’s head of sales, had some pointed words for the industry as a whole, and the state of the American auto market.
Following GM Financial’s subpoena from the Department of Justice, Santander Consumer said that it had received a subpoena as well related to
“production of documents and communications that, among other things relate to the underwriting and securitization of nonprime auto loans since 2007,”
The topic of subprime auto loans has been a hotly contested one at TTAC, with numerous commenters defending both the practice and the stability of recent run-up in subprime lending.
Buried in a feel good story about auto loans comes the news that subprime auto loans are at levels that we haven’t seen in nearly a decade.
The issue of subprime car loans, specifically loans with exorbitant interest rates for used cars, has filtered into the New York Times, with the paper’s Dealbook section running an investigation into the practice.
The Office of the Comptroller of the Currency, a government entity that regulates and supervises banks, is sounding the alarm regarding risks related to auto loans.
OEM captive financing arms are increasing their share of new car loans, with banks resorting to underwriting riskier loans in the used car market and to less credit-worthy buyers.
The global outlook for Auto Back Securities (ABS) is steady – except in North America, where underwriting standards and borrower credit are slipping. (Read More…)
New technology is allowing buyers with no credit score – due to a lack of credit history or a personal bankruptcy – to get vehicle financing via examination of documents like the payment history of their cable or cell phone bill.