Irresponsible and dangerous lending practices in the U.S. automobile market have been flagged by many people for a long time, but nobody knows exactly when it will all come to a head and create real problems. Today, I want to flag the latest warning sign.
Bloomberg reports:
Subprime auto bonds issued in 2015 are by one key measure on track to become the worst performing in the history of car-loan securitizations, according to Fitch Ratings.
This group of securities is experiencing cumulative net losses at a rate projected to reach 15 percent, which is higher even than for bonds in the 2007, Fitch analysts Hylton Heard and John Bella Jr. wrote in a report Thursday.
“The 2015 vintage has been prone to high loss severity from a weaker wholesale market and little-to-no equity in loan contracts at default due to extended-term lending, a trend which was not as apparent in the recessionary vintages,” said the analysts, referring to lenders’ stretching out repayment terms on subprime loans, sometimes to over six years, to lower borrowers’ monthly payment. That becomes riskier in the tail end of the loan, after the car has mostly depreciated and borrowers may be left owing large balances.
Credit-rating companies that assess the auto debt packaged into bonds have raised concerns in recent months about rising delinquencies and defaults. They note that additional pressures in the used-car market have weighed on lenders’ ability to recoup funds from borrowers who have their cars repossessed.
Furthermore, the market for subprime auto-loan securitizations has shifted considerably since 2008. Fitch warns of the rapid growth of new and less-established lenders with weaker underwriting standards, echoing other industry reports that show “deep subprime” lenders making up a bigger part of the market.
Not just subprime, but “deep subprime.” Sounds like a great idea.
For prior articles on this topic, see:
2017: Welcome to the U.S. Auto Market aka the ‘Trade-in-Treadmill’
2016: Subprime Auto Loan Delinquencies Jump to Highest Level Since 2010
2015: Subprime Auto Loan “Titan” Foolishly Proclaims There’s Nothing to Worry About
2015: Gotta Keep Dancing – Honda Executive Laments “Stupid” Auto Loans Driving U.S. Sales Higher
2013: Introducing the 97-Month Auto Loan
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Typical puddle-depth flotsam from Bloomberg. You left off the all too familiar punch line:
“While Fitch and competitors including Moody’s Investors Service have cautioned about risky lending practices growing in the auto ABS market, the raters don’t foresee wide-scale downgrades, given structural enhancements in the notes and their fast amortization.”
What else in a financialized economy of , by and for hucksters. Those making these loans learned from last time not to hold on to any of these ‘bonds’. Get ’em sold as fast as possible so they are not left holding the bag o’ crap. Mind you last time, 2008, the profits were privatized and the astronomical losses were socialized while the outright losers were those buying these ‘products’ both then and now. Everyone,lending institutions, rating agencies and government oversight agencies are playing the same game just on a much smaller individual basis, but adding up to quite a ball of wax in the aggregate. Caveat emptor.
You can just about count on “securitization” of any type of loan to be a foolhardy venture for the gullible.
on a side note.
before we get too distracted by so much of what is going lately in the financing arena let us not forget the aging frauds of history .
remember eric holder? I remember how much you used to write about him mike.
http://www.pbs.org/wgbh/frontline/film/untouchables/
now, goldman sachs runs the whitehouse with an even tighter grip than it did under obama.
what will happen over the next 3-4 years as banks openly and notoriously respond to an implicit guarantee that they will not be investigated, prosecuted, or even paid attention to for rampantly fraudulent behavior?
holder’s justice department analogue under trump?
just look at trump’s head of the SEC, a sull crom insider. https://www.nytimes.com/2017/01/04/business/dealbook/donald-trump-sec-jay-clayton.html
if you thought holder’s covington white shoe firm was bad, —sullivan cromwell is liek the core bankstergarchy firm up there in the stratsphere of most expensive firms. them , davis polk, cravath, and wachtell.
honestly , i think the public would be better protected from wall street if the sec had not leader, and possibly were simply eliminated. as it stands the sec basically runs a system for protecting the fraud and hiding it too.