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.
Detroit Free Press reports the U.S. Treasury lost $11.2 billion in taxpayer money from the rescue of General Motors back in 2008, up from the $10.3 billion estimated after the agency sold its remaining shares back in early December 2013. Part of the final figure came as a write-off of an $826 million “administrative claim,” which was found in a report by the Office of the Special Inspector General for the Troubled Asset Relief Program. The overall figure pales in comparison to the $50.2 billion given by both Bush and Obama administrations between 2008 and 2009 to GM as the automaker struggled through its financial crisis at the onset of the Great Recession.
Subprime auto financing continues to grow, and while one analyst at Moody’s says that banks are largely staying out of the subprime space, overall lending continued to rise, with retail banks seeing some of the strongest growth. This expansion in lending, particularly subprime, was attributed as a key driver in auto sales. SNL cited forecasts for a SAAR of between 16 and 16.7 million in 2014, up from 15.5 million in 2013.
Subprime borrowers have accounted for more than 27% of new car and light truck loans this year, the highest level since 2007, according to Bloomberg. A year ago, a buyer with a credit ranking in the bottom percentile would not likely have been able to buy a car. This year people with credit stores as low as 500 or lower have qualified for loans.
After the Federal Reserve has kept interest rates near zero for five years now, the subprime car loan market is now being described as “frothy”. With interest rates so low, investors are willing to purchase the riskier bonds that back subprime car loans in pursuit of higher returns. A number of financial companies have entered that market. Citigroup reports that 13 loan backers have accessed the asset-backed market to fund subprime auto loans this year. (Read More…)