We are in the midst of watching the subprime auto lending bubble burst in its entirety. Smaller subprime auto lenders are starting to implode, and we all know what comes next: the larger companies go bust, inciting real capitulation.
In addition to our coverage out just days ago talking about how the subprime bubble has burst and, since then since has been crunched even further, additional reports today are showing that smaller subprime lenders are starting to simply implode after being faced with losses and defaults. In addition to losses and defaults, Bloomberg reported this morning that there have been allegations of fraud and under reporting losses, tactics that are clearly reminiscent of <throw a dart at any financial crisis/bubble burst over the last 30 years>:
Growing numbers of small subprime auto lenders are closing or shutting down after loan losses and slim margins spur banks and private equity owners to cut off funding.
Summit Financial Corp., a Plantation, Florida-based subprime car finance company, filed for bankruptcy late last month after lenders including Bank of America Corp. said it had misreported losses from soured loans. And a creditor to Spring Tree Lending, an Atlanta-based subprime auto lender, filed to force the company into bankruptcy last week, after a separate group of investors accused the company of fraud. Private equity-backed Pelican Auto Finance, which specialized in “deep subprime” borrowers, finished winding down last month after seeing its profit margins shrink.
The article continues:
The pain among smaller lenders has parallels with the subprime mortgage crisis last decade, when the demise of finance companies like Ownit Mortgage and Sebring Capital Partners were a harbinger that bigger losses for the financial system were coming. In both cases, rising interest rates helped trigger more loan losses.
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