Sub-Prime: Fitch Sends Shot Across Bow Of Auto Lenders
Seeing delinquencies and credit losses going up while used car sales and lending standards deteriorate, rating agency Fitch warned today that “U.S. auto lenders will likely report further weakening in asset quality metrics this year.” Translated into English, lenders will become increasingly dependent on sub-prime loans and exposed to their perils.
Fitch saw average credit losses go up 16 basis points in the first quarter, delinquencies rose 67 basis points. Double-digit increases in auto leasing volumes may boost auto sales, but Fitch views this “with caution, particularly since used car values will likely return to more typical levels after recent rises.” Translated into English: Their residual value assumptions are based on fantasy, and there will be a rude awakening.
According to Fitch, “the expected weakening in asset quality for auto lenders is occurring after a period of record-low losses and delinquencies, and we believe the weakening of metrics will remain within historical norms, supporting ratings.” In plain English: Fitch won’t change the credit ratings of auto lenders just yet, but if this trend continues, they have been warned.
LOL! It would seem not everyone is on board with subprime lending (of ANY kind). Properly underwritten or not, subprime anything is just not a good idea. It makes me wonder what the folks advocating subprime lending have been smoking, toking or taking. Whatever it is, it must give them great touchy-feely warm and fuzzies.
"U.S. auto lenders will likely report further weakening in asset quality metrics this year, driven mainly by lower used car values, **a loosening of underwriting terms** and further seasoning of loan portfolios, according to Fitch. " A loosening of underwriting terms is a big problem. Properly underwritten subprime is fine. Poorly underwritten loans of any type are a big problem.
Santander's and Chrysler's check to Fitch is in the FedEx, along with a note of thanks. "Keep scaring the other guys off subprime, and getting the media to equate subprime auto loans with the recent foreclosure wave and real estate bubble. Leaves the entire market open to us and it's the highest return / safest market niche available to us. And all ours. We're printing money and gobbling market share. Couldn't ask for more."
I am just about speechless. I really am. And then we see a story yesterday where they are relaxing the 20% down for a house! Do we never learn our lesson? This Country is in such horrible financial shape for several reasons. We just spend, spend, spend. We let everyone and anyone get a loan. No money down? No problem. You have a DVD player we can hold on to as collateral. I mean, REALLY!!! We are now allowing people to put down shotguns, televisions, Playstations and DVD players as a downpayment on a car?!!!! When this bubble burst again; I don't want ANY taxpayer dollars used to bail these Banks out. Fool me once shame on you. Fool me twice, shame on me. I won't let it happen.