By on August 21, 2014

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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.

Outstanding balances were up nearly 12 percent, rising to an all-time high of $839.1 billion dollars. 60-day delinquencies were up 7 percent to 0.62 percent in Q2, while 30-day delinquencies were up to 2.39 percent up from 2.38 percent year over year. Repossessions were up by 70 percent in the same time period, sitting at 0.62 percent.

Melinda Zabritski, Experian’s senior director of automotive finance, noted that ““The rosy glow of perfect payment performance in the automotive space is beginning to tarnish.” Despite Experian claiming that delinquencies were still at record lows, the total amount of loans that are 60-days delinquent has increased by $859-million, while 30 day delinquent loans have increased by $2.8 billion since Q2 2013.

A report by four analysts from the New York Fed acknowledged that while auto lending was growing rapidly, a sharp increase in subprime lending was due to the fact that this segment had been crippled during the 2008 financial crisis, when credit availability tightened.

Meanwhile, a change in the way FICO scores are calculated could make it easier for buyers to qualify for car loans. A report by Automotive News says that medical debt will be given less weight when calculating medical debts, while partial payment of debts will be taken into greater account. The new scores are also said to benefit those with little credit history, and should be rolled out by fall.

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86 Comments on “Repossessions, Delinquencies Up As Oustanding Auto Loan Balances Hit All-Time High...”


  • avatar
    DeadWeight

    “Meanwhile, a change in the way FICO scores are calculated could make it easier for buyers to qualify for car loans. A report by Automotive News says that medical debt will be given less weight when calculating medical debts, while partial payment of debts will be taken into greater account. The new scores are also said to benefit those with little credit history, and should be rolled out by fall.”

    Making it increasingly & significantly easier to allow more & more people to get themselves deeper & deeper in debt, as a last resort of “growing” the economy…

    … ‘Murica.

    • 0 avatar
      jmo

      You do know that one persons debt is another person or entity’s asset.

      • 0 avatar
        DeadWeight

        Do you mean that one person’s debt, when owed to an oligopoly that literally owns the legislature, will become the socialized responsibility of taxpayers writ large, when it is defaulted upon, thus impairing the economy and distorting the level of true price discovery in the overall economy?

      • 0 avatar
        stuki

        “You do know that one persons debt is another person or entity’s asset.”

        It’s not.

        That story sounds all kinds of cute, but is only accurate in a free, unmanipulated market. Like using GDP as a metric for a nation’s wealth.

    • 0 avatar
      Pch101

      Foreclosing on chemotherapy is hard.

      And good luck trying to repo that brand new open heart surgery.

      Bad medical things happen to good credit risks. The purpose of FICO is to create useful underwriting criteria for lenders, not to provide moral judgment against those who were dumb enough to get sick.

      • 0 avatar
        Kaosaur

        But substantial medical bills would indicate an inability to pay additional debt.

        Just because it was medical doesn’t mean you’re any more able to carry debt. If anything, you may be less likely to earning enough to pay.

        It’s not a moral judgement, it’s a math problem.

        • 0 avatar
          Pch101

          It’s not much of a math problem if the medical provider writes off the expense (which is often the case due to the lack of recourse.)

          That’s particularly true if it’s a one-time event that isn’t indicative of future earning or spending power.

          It just isn’t comparable to other kinds of consumer debt. The indebtedness usually isn’t voluntary and the inability to pay that debt is not an indication that other types of debts can’t or won’t be paid.

          • 0 avatar
            Kaosaur

            It just sends a huge signal that it’s okay for customer to prioritize certain kinds of debt.

            How do the hospitals feel about FICO deciding that they’re a not a primary creditor anymore?

            The whole consumer lending industry (outside of student loans) depends on all debt being treated equally.

          • 0 avatar
            Pch101

            It sends a signal that a guy who is selling cars doesn’t have to give a rat’s backside about his customer’s unfortunate history with gallstones, as the abilities to absorb a substantial one-time medical bill hit and a regular monthly consumer products payment aren’t at all comparable.

          • 0 avatar
            Kaosaur

            Pch101: as someone who used to have abysmal credit (sub 400) and now has great credit (high 700s/low 800s) in less than 7 years, it doesn’t take very long to repair the damage once your debts are paid off and you stop carrying more. Save for having a bankruptcy; though I know folks who had 680+ scores within 2-3 years of declaring bankruptcy.

            I hear what you’re saying, I’m just saying that this has bigger implications when folks are still carrying that medical debt.

          • 0 avatar
            DeadWeight

            Even if your rationalization about how medical debts are somehow different than other forms of debt is somehow rational (which it’s not; there’s no logic for treating medical debts differently in any way than other debts, since the currency of debt they’re denominated in, fiat money, is the same)…

            …how do your claims further extend to distinguish the component of “partial payment of debts [that] will be taken into greater account” that will soon also being given less attention to, for purposes of analyzing credit worthiness, in order to ratchet up the ability of lenders to push higher nominal (and real) amounts of debt towards increasingly marginal borrowers?

          • 0 avatar
            Pch101

            “(which it’s not; there’s no logic for treating medical debts differently in any way than other debts, since the currency of debt they’re denominated in, fiat money, is the same)”

            You don’t seem to understand what a credit score is for.

            It’s an underwriting tool. A potential creditor wants to be able to gauge the odds of repayment, and to price the risk accordingly.

            A guy who can’t pay for his back surgery is not in the same league as the guy who won’t pay for his Jetskis. The former is an indication that the borrower was sick, whereas the latter would suggest that he is a flake.

          • 0 avatar
            bigdaddyp

            Sometimes it’s not the inability to pay but the complexity of debt. I’ve have been turned into collections for medical debt.

            Here is one example of what happened to me. I started getting phone calls from a collection agency about a medical debt. I contact the doctors office and they say I owe money for services rendered, etc. I have proof that I paid my copay, and then I get documentation from my insurance company that they paid their portion. Doctors office response was oh, we will look into it. After months of dealing with them they finally fix the problem and eventually the collectors leave me alone. But guess what was still showing up on my credit report?

            Or another scenario is the insurance company is dicking around and not paying. Sometimes a medical center will only send one letter before turning it over to collections, sometimes before you can even get a response from insurance.

            IMHO, Medical billing is such a convoluted mess that is chronically riddled with mistakes. I agree that medical debt should carry less weight, but it shouldn’t be ignored either.

          • 0 avatar
            DeadWeight

            Pch, since you apparently didn’t see or ignored the critical 2nd part of my question of you, allow me to ask it again.

            How do your claims further extend to distinguish the component of “partial payment of debts [that] will be taken into greater account” that will soon also being given less attention to, for purposes of analyzing credit worthiness, in order to ratchet up the ability of lenders to push higher nominal (and real) amounts of debt towards increasingly marginal borrowers?

          • 0 avatar
            Pch101

            Credit scores attempt to quantify (a) one’s ability to get into trouble with debt (credit limits) and (b) one’s willingness to pay the debts that one has.

            Partial payments reflect more willingness to pay than no payments. An underwriter’s job is to forecast the odds of repayment, which incorporates the willingness to make payments. If you get off of the moral pedestal and see credit scoring as an underwriting tool, then it’s not that complicated.

          • 0 avatar
            DeadWeight

            Your argument is literally insane.

            A dollar of debt is a dollar of debt, whether incurred for a car or cappuccino.

            That you actually believe that a debtor who paid off, say 5 cents on the dollar of a still existing debt should be somehow consequently be granted greater credit access than their cohort who paid off none of it, is simply inexplicable.

          • 0 avatar
            Pch101

            There are a lot of things that you don’t get, and this is one of them.

            A potential creditor wants to assess the odds of repayment.

            Flakes make lenders more cautious than hard-luck cases who are in transition.

            A medical bill can be given lower priority, due to the inherent lack of recourse.

            If you think that Zero Hedge is a reliable source of information, then these concepts may be baffling to you. But creditors just want to know how likely you are to repay them.

          • 0 avatar
            jmo

            “A potential creditor wants to assess the odds of repayment.”

            DeadWeight doesn’t seem to understand it’s about math and statistics not morality.

          • 0 avatar
            dal20402

            Deadweight, the answer to all your questions is “because this is a statistically based underwriting tool, and the statistics support the changes.” You may not understand why a debtor who partially repays is a better risk than one who doesn’t repay at all, but these changes wouldn’t be happening if it weren’t true.

            Rail all you like, if you like, at a system that requires most people to go into debt just to live their lives — but taking that anger out on the credit scoring mechanism, which is just a statistical tool, is stupid.

          • 0 avatar
            Kaosaur

            DeadWeight: Pch101 is probably right about how lendors feel about credit risk. That’s why sub-prime was the #1 biggest category of debt before and is #2 still today.

            It’s still insane though. We’re only willing to take these risks on write-downs and losses because the banks WILL be bailed out and the debt WILL be passed on across generations.

            The idea of the day as a lender is not to avoid taking on bad debt, but to to avoid taking on debt that makes your portfolio look toxic.

            They need the volume.

          • 0 avatar
            28-Cars-Later

            “We’re only willing to take these risks on write-downs and losses because the banks WILL be bailed out and the debt WILL be passed on across generations.”

            That was on the of the reasons for the Fed in the first place.

            “A significant difference between the European and U.S. banking systems was the absence of a central bank in the United States. European states were able to extend the supply of money during periods of low cash reserves. The belief that the U.S. economy was vulnerable without a central bank was not new. Early in 1907, banker Jacob Schiff of Kuhn, Loeb & Co. warned in a speech to the New York Chamber of Commerce that “unless we have a central bank with adequate control of credit resources, this country is going to undergo the most severe and far reaching money panic in its history”.[64]

            Aldrich convened a secret conference with a number of the nation’s leading financiers at the Jekyll Island Club, off the coast of Georgia, to discuss monetary policy and the banking system in November 1910. Aldrich and A. P. Andrew (Assistant Secretary of the Treasury Department), Paul Warburg (representing Kuhn, Loeb & Co.), Frank A. Vanderlip (James Stillman’s successor as president of the National City Bank of New York), Henry P. Davison (senior partner of J. P. Morgan Company), Charles D. Norton (president of the Morgan-dominated First National Bank of New York), and Benjamin Strong (representing J. P. Morgan), produced a design for a “National Reserve Bank””

            http://en.wikipedia.org/wiki/Panic_of_1907

          • 0 avatar
            DeadWeight

            Any individual’s ability and willingness to repay future loan/debt obligations is necessarily correlated to their past performance and their existing debt levels, as tied to a measurement of their current income.

            Your attempt to carve out exceptions, treat one dollar of debt differently than another depending on its origination, etc., is disingenuous.

            Apples to apples, the same person who has 100k in debt derived from non-discretionary services rendered (they owe money because they had to have their house foundation are repaired) versus the same person who has 100k in debt derived from discretionary consumer goods purchases, with the same current income, has the same tolerance to assume further debt, all other things being equal.

          • 0 avatar

            RE: “It sends a signal that a guy who is selling cars doesn’t have to give a rat’s backside about his customer’s unfortunate history with gallstones, as the abilities to absorb a substantial one-time medical bill hit and a regular monthly consumer products payment aren’t at all comparable.”

            The guy selling cars doesn’t make the credit decision. Even in the case of BHPH, the deal either fits a certain set of credit parameters, or it doesn’t. If a dealer doesn’t agree with the credit decision of the lender he/she is free to endorse the contract if the lender will allow it. We call that “tattooing” or “riding in the trunk.”

          • 0 avatar
            Pch101

            “You may not understand why a debtor who partially repays is a better risk than one who doesn’t repay at all”

            He clearly doesn’t, and he obviously doesn’t want to.

            Credit scoring wasn’t invented by Jesus. The formula wasn’t carved into stone by some holy deity. It’s a tool that gets adjusted over time to serve its customers.

            The customers in this case are the creditors. They apparently believe that these changes would make their underwriting more accurate.

            Creditors already judge some debts as being more important than others, because they know that they aren’t equal. This is not an emotional position, but an actuarial one.

          • 0 avatar
            DeadWeight

            @28 days quoted & wrote:

            “We’re only willing to take these risks on write-downs and losses because the banks WILL be bailed out and the debt WILL be passed on across generations.”

            ‘That was on the of the reasons for the Fed in the first place.’

            —-

            Exactly.

            The crux of the matter is that it’s not economically healthy, and is likely to be disastrous to the economy as a whole, for CREDITORS to be immune from their responsibility to engage in serious, appropriate risk analyst in lending standards.

            This is why we’re where we are today, with an anemic “recovery,” as trillions of dollars has been expropriated from taxpayers and savers, to make entities such as AIG, Citi, etc. ad infinitum whole despite their absolutely shocking lack of appropriate financial risk management.

            The expropriated trillions used to bailout financial entities, in particular (people complain about GM & Chrysler, when they received a mere pittance/literal drop in the ocean compared to what the financial firms and banks received in the form of bailout funds) has already damaged the structure of the U.S. Economy, and has resulted in a massive drag on job creation, wage increases (for almost all but those employed in the financial sector/Wall Street), and household formation (as Gen Y has delayed marriage, housing purchases, etc. due to poor to prospects, retardation of wages, etc.).

            It’s appalling what has happened in and is continuing to happen to this nation.

            A formerly much more vibrant, much larger middle class of Americans are continuing to be wiped out by not only their own debt, but the debt of entities shifted onto them and their children by our Congress via TARP/TALF/QEinfinity.

        • 0 avatar
          dal20402

          Deadweight, you still don’t get it.

          These changes are reactive. They are happening as a result of creditors’ actual experiences.

          In other words, they are happening because borrowers’ actual repayment history shows that some debtors are more likely to repay than others.

          Whether you think that makes sense or not really doesn’t matter, because it’s true. If it weren’t, the scoring models wouldn’t be changing. Credit scoring models are an actuarial attempt to predict future risk based on past history, nothing more and nothing less.

        • 0 avatar

          It surely is.
          A recent checkup sent me a $1500 bill for basic bloodwork. The Insurance company’s negotiated rate ? $268. Paid by insurance and done.

          A recent routine scope revealed a $6000 facility fee, and $2000 anest. Ins paid $630 and $800. Again done.

          I don’t have health insurance, I belong to a buyer’s club. You have to get insurance if only to get the “negotiated” prices !!!! You can’t even make a rational economic choice to not have insurance because of this. Medical list prices in the US are spun from whole cloth, and you almost never have an ability to “shop around”.

          I always get incensed when folks talk about “choice”. You can choose healthy habits, but you can’t choose not to get sick, and even healthy folks get sick sometimes…. I agree with the decision not to report medical bills the same as other debt…it is NOT consumer debt save for the one person in LA who paid for botox.

          I pass a local mid size Mopar store every day. In the back are the repos, with name of debtor and bank written on the front in grease pencil. Bald tires and messy interiors. Notably none of them are flashy or what the B&B might consider desirable. Always looks like a sad story.

      • 0 avatar

        Another purpose of FICO is to give lenders an objective way to explain why they turned down a borrower’s application as an offshoot of the CRA.

        FICO isn’t a moral judgement but one of the methods for a lender to determine if they will be repaid. Regulators tend to look for consistency in a lender.

        For a car dealer there is always a way to get a customer “approved,” although the stipulations might not be anything the consumer will or can tolerate.

        Sometimes an application is approved based on the creditworthiness of the borrower. Sometimes the loan might be granted based on secure job time and equity in the collateral. Sometimes an application might be approved based on additional initial investment on the part of the borrower, along with a higher interest rate to provide a cushion for default and deficiency, along with a shorter term.

        There used to be a lot of automated approval, tiering, and conditioning through lender software. There are far fewer auto approvals done these days. It used to be a 690 would be “fast tracked.” These days a 780 Beacon/FICO, with high DTI (debt to income),might get “conditioned” or approved on a B or C tier interest rate. Its not as bad as it was during the roaring days of the W. Bush administration, but there are still some “ticking credit time bombs” out there.

        The market is so competitive at the high end of the credit scale there isn’t enough yield to make it worthwhile for many lenders. CUs have an advantage here. But they are all looking for yield.

    • 0 avatar

      …and yet if I spoke out against this, I’d be labeled a cold-hearted, self-hating Republican Elitist snob.

      Oh well… Perhaps people on section 8 are entitled to have a Hellcat faster than my cars.

    • 0 avatar
      highdesertcat

      DW, Discover Credit Card recently started providing its cardholders with their FICO scores. Turns out, it is a meaningless number. Only Discover goes by it. No one else in the lending industry abides by it. Lenders don’t honor it.

      In the fine print on the monthly Account Statement it says, “Your FICO Credit Score is based on data from TransUnion and may be different from other credit scores.”

      Just for grins I contacted my credit union and asked them to look up my credit scores from all three agencies, including my FICO scores. There were three different credit ratings and FICO scores from three different agencies, all of them showed I had credit cards I rarely used but no substantial use of credit, like financing a vehicle, since 1988.

      Sounds to me like the credit agencies AND the lenders are playing fast and free with make-believe credit ratings and FICO scores.

      That certainly adds punch to your statement about more people getting themselves deeper in debt, and not being able to afford it or pay it back.

      • 0 avatar
        DeadWeight

        It’s not only that people are being literally forced to go deeper into debt to exist (people have to eat, have access to energy, etc.), but they’ve had their future earnings confiscated to pay off the debts of bad economic actors such as AIG, Citi, Bank of Merrill Lynch/America, etc.

        Trillions and trillions of dollars have been literally gifted to financial firms/Wall Street by our CONgress, and the collateral for those trillions of fiat units is the present and future earnings of working Americans (and their children).

        The last time the U.S. had a debt-to-GDP ratio this high was during the height of WWII, and we’re now absolutely turning Japanese on the monetary policy front (with Japan essentially mired in stagflation for 20 years despite engaging in a mirror image of QE for the bulk of those years, resulting in Japan having an “official” debt-to-GDP ratio of nearly 250%).

        • 0 avatar
          highdesertcat

          I agree! That’s why I do what I can for my kids and grandkids to keep them from starting their working life in debt.

          Again, I’m not the Lone Ranger doing this. Millions of parents and grandparents who understand the current state of financial affairs in America are doing the same for their kids and grandkids.

          Fortunately, I am also blessed in that my wife’s father and I share the same philosophy and he is doing his best to redistribute his accumulated personal wealth among his daughters and their kids in the form of cash and real estate, so that the government won’t be able to get a hold of it when he dies.

          • 0 avatar
            mike978

            The Government wouldn`t get hold of it unless he has an estate over something like $5 million. The estate tax didn`t hit 99% of families.

  • avatar
    Kaosaur

    Wait a second.

    So, we had the greatest concentration of loans in sub-prime lending pre-2008? And nobody went to jail? This graphic shows a picture way worse than anyone has admitted to.

    Of course, this is stuff many of us have known for a while. At least the “market forces” are operating with some common sense now.

    • 0 avatar
      mike978

      I note that real sub prime, <620, is still smaller than anytime between 2000 and 2008, even without adjusting for inflation. So much for a bubble and "record debt" prouncements.

    • 0 avatar
      highdesertcat

      Kaosaur, seems to me Larry Summers said that the banks would not be prosecuted (even though they were instrumental in encouraging subprime lending leading to the Great Recession.)

      Then again, maybe since Bill Clinton advocated and encouraged home ownership during his terms in office, and members of Congress concurred, it makes the government an aider and abettor of subprime lending.

      The US taxpayers stand ready, willing and able to bail out whatever fails next. Precedence already set.

  • avatar

    It makes good sense for vehicle debt outstanding to be at an all time high. After all, the prices of cars has advanced both through price increases on new vehicles and higher prices on pre-owned due to the used vehicle shortage. This is nothing to be alarmed about.

    The bruised FICO scores of so many Americans, caused by the Great Recession, is one of the major factors that has held back the economy. Middle class consumers can’t buy big ticket items without credit. Big ticket items employ people. We have incredible pent up demand in new vehicles. But people will have to rebuild their credit scores to buy them. In the meantime, the sub prime market serves them by financing the vehicle they need to get to work and generally function. More importantly, it helps them rebuild their credit score. 18 months of regular payments on a car loan can do wonders for a credit score and will most likely raise someone to the point they can get a near prime loan on a new vehicle all other things being equal.

    HOWEVER, it is ESSENTIAL for consumers to know what they are doing. they should NEVER do business with a Buy Here Pay Here dealer that doesn’t report to the credit bureau. Financing through an indirect sub prime lender takes care of that but their restrictions might prevent the consumer from gaining financing for a car. They don’t buy everyone.

    • 0 avatar
      Kaosaur

      I can’t speak for other people with 750+ credit scores, but I have no debt, great credit and no reason to borrow. I wasn’t a potential car owner at the time because I lived in NYC. I pay off my credit cards every month and will sometimes carry a balance for a large purchase but never for more than a couple of months.

      Despite my credit score, buying really big ticket items and having many years of payments is really unattractive. I’m probably about to buy a new car, but I’m going to end up getting something cheap that I can pay off quickly.

      If my income were higher, I’d be a lot more willing to carry debt, but opportunities across my generation are pretty poor outside of a couple of industries and I didn’t work hard enough earlier in my life when I should have.

      • 0 avatar

        Those last two paragraphs, COTD

      • 0 avatar
        28-Cars-Later

        This describes me as well, but I wouldn’t beat myself up for the “not working harder” when I was younger. I personally know three people who did work hard earlier in life (straight As academic types) and only one of them has “made it”. I also know someone who got an undergrad business degree, went nowhere with it, went back and got an another undergrad degree in generic IT, and is now flying higher than yours truly despite less experience and less specialized training. The world is a messed up place, but what can ya do?

        • 0 avatar
          krhodes1

          Sometimes it is not about working harder. It takes time to build both the experience and the opportunities to get into a position to make more money. I got my first real professional salaried position when I was 28, making all of $33K a year – I thought I was rich. It took until I was 38 to get to $50K, with a looong stretch stuck around $40K. But 8 years later I am making more than double that and climbing. With vanishingly rare exceptions, nobody makes big money when they are young, and a lot of those folks had huge student loan debt even back when school was cheapish. Patience kids, your turn will come too.

          • 0 avatar
            Kaosaur

            Thanks for the comments all. I’m beating myself up more than I should. I’ve been touched by both hands of the luck fairy and I’m just beating myself up for making bad choices and substantially less than I did a 7 years ago. A lot does come down to your background and available opportunity but that’s a bit more of an advanced topic than what I glossed over it with.

            I feel a lot of us are in this boat. My opinions on who and why are probably best kept to myself though.

          • 0 avatar
            319583076

            To quote Niels Bohr, “An expert is someone who has made all possible mistakes in a narrow field of knowledge.” There’s also this one from an unknown NASA engineer, “Failure is your friend.”

            The sole tragedy of a mistake is failing to learn from the opportunity. Like krhodes1 said, success generally comes later in life, once you’ve managed to convert the valuable knowledge gained from making mistakes into succeeding when opportunities arise.

      • 0 avatar
        danio3834

        Hindisight is 20/20 as they say. If I could do it all over again I would have bought certain stocks, never bought others and picked lottery tickets with winning numbers.

    • 0 avatar
      Firestorm 500

      @ Ruggles: Oh, poo. All they want is some wheels, NOW!

      They are not going to read a 9-page contract with a BHPH lot.

      • 0 avatar
        geeber

        My thought exactly. Several relatives work regularly with low-income people, including individuals on some sort of public assistance. A detailed, logical explanation of the pitfalls of Buy Here, Pay Here lots, rent-to-own furniture and high-interest credit cards is simply a waste of effort in virtually all cases.

        • 0 avatar
          fincar1

          I agree. My daughter was an ER EMT for a while, and encountered people who wanted to know if they could get treated before the next scheduled transit bus. This is about as much forethought as they give anything in life.

      • 0 avatar

        I’ve seen a few BHPH loan packages. The target market doesn’t read them, won’t read them, and worse, has no choice.

  • avatar
    DeadWeight

    There was a time in the history of the U.S. when it was not only common, but required, for a home buyer to have to put 20% of the total purchase price down in order to obtain a mortgage on a home; that time was as recent as the early 1980s.

    Today, the average amount required as a down payment on a home purchase is anywhere from 3.5% on a new home (since FHA only requires 3.5% down, and since 86% of new homes are backed by the taxpayers through FHA-backed mortgage notes, in order to give assurances to the “lender”), to maybe 5.5% down on an existing home purchase.

    This is because the U.S., like England, is circling the drain down the rat hole of becoming an increasingly FIRE economy, where the products made that increasingly contribute to our “GDP” are financial, rather than tangible, ones, and as a result, labor becomes the cheapest resource of all, resulting in the exact situation we find ourselves in today: An increasingly larger % of the population has to go into increasingly larger amounts of debt, in order for the country to show economic “growth” (regardless as to how deceptive the metric used to show such growth actually is).

    But as the oligarch structure (the too-big-to-fails)depends on such a model for survival, profits and bonuses (to the detriment of smaller, non-oligarchic competitors, aka small businesses), expect the debt of the average person to increase, even as the average AND mean standard of living decreases, since the oligarchs will be bailed out time and time again (i.e. the taxpayers being forced to collectively bail favored economic actors, such as the banking sector, etc., out) in the wake of defaults on every kind of loan imaginable.

    IOW, expect moral hazard FOR OLIGARCHS/CRONY CAPITALISTS to DECREASE, in lockstep with the DECREASE in the % of the true middle class.

    • 0 avatar
      thornmark

      >>There was a time in the history of the U.S. when it was not only common, but required, for a home buyer to have to put 20% of the total purchase price down in order to obtain a mortgage on a home; that time was as recent as the early 1980s.<<

      The lower down payment also helped bid up the price of homes, undoing illusory affordability.

      Easy debt financing has inflated not just real estate prices, but the cost of college educations and cars. Colleges and universities would never be able to increase tuition the way they have w/o government backing.

    • 0 avatar
      krhodes1

      Give it a rest. I bought my house with a 3% down mortgage. It was the only way I COULD have bought a house at that point. I was (and am) a single guy. I was making $40K a year, which was quite decent money for my area but even back in ’01, between rent, student loans, and living expenses, it was tough to save any substantial amount of money. My folks actually loaned me the down payment – which I paid back with interest. It made far more sense to buy than to rent, tax advantages etc. I was just careful to buy a house I could actually afford, not what the bank was willing to lend me. $127K for the house, to be exact. Even back in ’01, I was approved for a $180K loan on that $40K salary. Yeah, right, at 8.25% plus PMI.

      Ultimately, the problem is not the “system”. It is people being stupid with their money, whether earned or borrowed. Nobody needs a 5K sq/ft McMansion with granite countertops and a 2-story foyer. If you can comfortably afford that and WANT that, more power to ya, but you don’t NEED that. The previous owners of my little shack lived here for 70+ years and raised six kids in a (eventually, they built a 2br addition) 1200sq/ft 4 bedroom 1 bath house.

      • 0 avatar
        319583076

        COTD, right here.

      • 0 avatar
        Number6

        You can’t buy a home on a single income these days- I can count the number of single-income homeowners I know on one hand (and half were from divorces)…I am one of them.

        Funny, in the 1970s, my blue-collar parents (truck driver and line worker) and my mother’s blue collar parents (millwright and janitor) owned a combined 3 cars, two homes, and a summer place.

        You think the problem is the credit? Hogwash. None of those four people worked more than 40 without OT. I haven’t worked less than 45 hours a week in over a decade and i can barely afford a 1400 sq ft home and a car payment. The productivity in America is up, the standard of living has been circling the drain for 30 years and counting.,.now get back to work, your CEO has payments on his Aston and senators to make….

        • 0 avatar
          DeadWeight

          Labor of productive Americans is being crushed by the Oligarchs (with their hand maidens in government helping this process along).

          I dare anyone to read even a part of the following article (where an owner of a factory in New York State is whining that he can’t find skilled labor to run CNC machines and do other similarly skilled tasks for $10 an hour, and in his delusions chalking his problems up to a shortage of “skilled workers”), and tell me that there’s not a concerted effort to skewer the living standards of millions of honest, talented, skilled, hard working Americans, on the altar of insatiable greed:

          http://www.nytimes.com/2012/11/25/magazine/skills-dont-pay-the-bills.html?pagewanted=all

          Quick excerpt:

          “Eric Isbister, the C.E.O. of GenMet, a metal-fabricating manufacturer outside Milwaukee, told me that he would hire as many skilled workers as show up at his door. Last year, he received 1,051 applications and found only 25 people who were qualified. He hired all of them, but soon had to fire 15. Part of Isbister’s pickiness, he says, comes from an avoidance of workers with experience in a “union-type job.” Isbister, after all, doesn’t abide by strict work rules and $30-an-hour salaries. At GenMet, the starting pay is $10 an hour. Those with an associate degree can make $15, which can rise to $18 an hour after several years of good performance. From what I understand, a new shift manager at a nearby McDonald’s can earn around $14 an hour.”

  • avatar
    philadlj

    HONDA’S RIGHT!!!

  • avatar
    korvetkeith

    I just had idea I’ll give away for free on how to establish a new premium car brand. Require a 20% downpayment on the purchase of the vehicle. Imagine the snobbery you’d be afforded when looking down on that prole in a leased X1.

  • avatar
    FormerFF

    I wonder how much of that increased balance is due to the generous finance offers and low rates. I bought a car in March, was going to pay cash until I found I could borrow at 2.24%.

  • avatar
    sirwired

    Looking at that graph, I’m not seeing a problem. Subprime seems to be increasing not much faster than originations in most other credit classes, which would instead speak to an overall growing market. Note that that current credit worthiness is still WAAAAYYY healthier than any point on that graph prior to the Great Recession.

    I could understand the point if subprime originations were still TWICE prime originations, but that’s clearly not the case.

    And as I’ve pointed out before, it’s all kind of pointless unless you reveal the net margins for the different credit classes. (Interest charged minus loss ratio.) Subprime loans cost a LOT compared to a prime loan… if the increased rates cover (or, most likely, more than cover) the losses, then while tragic for individual borrowers that bought a car they couldn’t afford, the threat to the lenders or the economy at large is not very great.

    The only threat to automakers is that models popular with the sub-prime crowd will take a sales drop, but that’ll be offset by the fact that nearly everybody needs a car, and if they pick up a late-model used instead, it’ll help out lease residuals.

  • avatar
    tomLU86

    The truth isn’t always pleasant, but I’d said DeadWeight has it down.

    We (the USA) are an increasingly FIRE (Finance, Insurance, Real Estate) economy.

    A ‘perfect storm’ of factors, some natural, others man-made, made America the most prosperous, richest country the world has ever known.

    A ‘perfect storm’ of factors, most man-made, has now made us the most indebted civilization in the history of the world.

    We’ve been drowning in debt my entire adult life–now we are deeper. Yet through it all, somehow, we have avoided the day of reckoning.

    As the 70s ended, we were confronted with debt and inflation.

    In the 80s, our govt racked up huge budget deficits, our economy racked up huge trade deficits, and yet we survived, and some thrived. The Japanese led the way in foreigners buying American assets

    In the 90s, we got cheaper oil (always a tonic!), cheap money (thanks Mr. Greenspan), and cheap labor from China, keeping prices low and stock markets rising. The Chinese bought our debt.

    In the 2000s, we started several wars, racked up huge budget deficits, our huge trade deficit plateaued; the excess of speculation led to a financial meltdown and a world depression just after (because of perhaps?) oil touched $150/barrel, yet society survived.

    And now we motor along, with 0% interest rates (for savers, which there don’t seem to be many of), 4% mortgages, lots of televised world turmoil, a record wheat crop, and we talk about the debt. So maybe there is no of day reckoning. Will there be?

    • 0 avatar
      319583076

      No, there won’t be a day of reckoning. We exist in flux, the reckoning is happening continuously. The European and Judeo-Christian beliefs in rapture, judgment, and apocalypse are designed for maximum fear – which a good sign of infidelity with objective reality.

      See, for example, “The Slow Apocalypse: A Gradualistic Theory of the World’s Demise” by Andrew McMurry. http://pmc.iath.virginia.edu/text-only/issue.596/pop-cult.596

    • 0 avatar
      jmo

      “(for savers, which there don’t seem to be many of)”

      Who is buy the bonds back by these loans then?

    • 0 avatar
      Kaosaur

      In 2007, the financial company I worked for had a “fireside chat”/open Q&A session with Alan Greenspan, Larry Summers and Robert Rubin for our annual company party. Basically it was an explanation of how the crisis happened and the decisions made with 1990s/early2000s monetary policy that caused it to happen.

      The mea culpas couldn’t fly out of Greenspan and Rubin’s mouths fast enough. They’re really nice people though. Larry is a more slippery kind of guy…

      • 0 avatar

        Larry is the worst. Greenspan made terrible errors, but he did it with good intentions. Summers is just an arrogant prick.

        • 0 avatar
          Kaosaur

          I almost got fired because it was made my responsibility to make sure he logged into his account to receive email and he _refuses to use a computer_. He wouldn’t tell anybody about this of course, he just let the problem escalate until a director had to step in and settle the situation. I can’t explain strongly or properly enough my dislike for the guy.

          His portrayal in The Social Network, while completely incorrect on details (he will not touch a keyboard or pick up a phone), perfectly nails his character and his way of dealing with people.

          • 0 avatar

            I presume you are referring to Summers?

            Regretfully, our President designated Summers to oversea the GM and Chrysler bailouts. The President knew there was no other option, the only issue was how to go about doing it. Obama’s instructions to Summers: “Make sure all of the constituent parties take a haircut.” Summers interpretation of his “marching orders,” and Steve Girsky whispering in his ear, led to the termination of dealers. It wasn’t Rattner’s call. The Special Inspector General for TARP excoriated Team Auto for the dealer terminations, along with some other things. Given the time constraints they probably did the best they could. Another group might have gotten some things right, and other things wrong.

            Summers impresses me as a guy who just won’t listen because he already knows everything.

  • avatar

    http://www.forbes.com/sites/jimhenry/2014/07/31/renters-deserve-more-credit-and-auto-loans-than-they-are-getting/

  • avatar

    @ Stuki – RE: “That story sounds all kinds of cute, but is only accurate in a free, unmanipulated market. Like using GDP as a metric for a nation’s wealth.”

    So what measure would YOU use?

  • avatar
    JoeChip

    I find it simplest to stay out of debt and pay cash for everything. I have no mortgage, no car payments, and no credit card debt. I don’t know, or care, what my FICO score is.

  • avatar

    RE: “Then again, maybe since Bill Clinton advocated and encouraged home ownership during his terms in office, and members of Congress concurred, it makes the government an aider and abettor of subprime lending.”

    George W Bush advocated and encouraged home ownership. So has every Republican President. No need to single out a Democrat President. As a matter of record Fannie and Freddie didn’t buy or guarantee sub prime mortgages EXCEPT when they bought mortgage backed securities themselves.

    As a matter of record, CRA mortgages are NOT “subprime mortgages.”Even if they were, they have outperformed the overall mortgage market, according to the Federal Reserve.

    The mortgages that were the problem is that they were made by investment banks, NOT traditional depository banks controlled by the CRA. The problem loans were NOT made because anyone forced the lenders to make them, they were made because there was no one to prevent them.

    • 0 avatar
      highdesertcat

      Maybe that’s why BoA agreed to a settlement of almost $17B.

      And maybe the Feds will go after Mozilo because of his close association with members of Congress who promoted home ownership, and who enjoyed special mortgage rates from Countrywide.

      • 0 avatar

        BOA agreed to the fine as part of a deal reached with the FDIC when FDIC conducted certain shot gun marriages during the dark days of banking. The fine has more to do with Countryside than with BOA.

        But this idea that Congress promoted home ownership is significant exactly how? W promoted home ownership. I posted a link to his speech on the subject.

        Fannie and Freddie were created down through the years going back to the 1930s to promote home ownership. What connection are you trying to make?

    • 0 avatar
      Kaosaur

      I never get why people try to shift blame towards CRAs. It doesn’t make sense. They’re actually not that easy to get; subprime financing is given out like free candy.

      You’re right on that it’s all about mortgage backed securities. Credit default swaps, yammo!

      Ultimately though it all comes to valuations and the willingness of greed to trump risk assessment. Given how often the concept of taking a bunch of manure and packaging it as diamonds comes up in multiple financial industries (take a look at collections!), it seems the lynchpin of the entire financial sector is bullshit.

      The word “deregulation” should never be uttered in financial terms again. We need more, a lot more, not less.

      I worked for hedge funds. I’m not bitter at all, I swear.

    • 0 avatar

      http://autosandeconomics.blogspot.com/search?q=mortgage+crisis

    • 0 avatar
      stuki

      The loans only affected those of us who neither made them nor took them out, because of bailouts and The Fed. Otherwise, there would simply be no conduit through which the stupid and the greedy could cause much harm to anyone but each other.

      • 0 avatar
        dal20402

        How did any bailouts or Fed actions affect you, personally? Be specific. And referring to either inflation or a dramatic spike in bond yields that you think might happen at some time in the future doesn’t count, because neither of those things has happened or appears likely to anytime soon.

  • avatar

    RE: “No one else in the lending industry abides by it.”

    It is not for lenders to “abide” by credit scores. They consider them as part of an underwriting process, different for each lender.

  • avatar

    RE: “We’re only willing to take these risks on write-downs and losses because the banks WILL be bailed out and the debt WILL be passed on across generations.”

    What banks were bailed out aqnd the debt passed on across generations? This is news to me. Are you aware TARP has made a profit?

  • avatar

    RE: “Apples to apples, the same person who has 100k in debt derived from non-discretionary services rendered (they owe money because they had to have their house foundation are repaired) versus the same person who has 100k in debt derived from discretionary consumer goods purchases, with the same current income, has the same tolerance to assume further debt, all other things being equal.”

    This is not the way our credit system works.

  • avatar

    re: “The loans only affected those of us who neither made them nor took them out, because of bailouts and The Fed. Otherwise, there would simply be no conduit through which the stupid and the greedy could cause much harm to anyone but each other.”

    HUH?

  • avatar
    stanczyk

    Another bubble is comming.. they will pack it into ‘derivatives\'(‘owners’ from Wall-$) .. and you know how the scenario will develope..

    Welcome to banksters-corporate america..


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