{"id":18180,"date":"2016-02-24T12:18:47","date_gmt":"2016-02-24T17:18:47","guid":{"rendered":"http:\/\/olduvai.ca\/?p=18180"},"modified":"2016-02-24T12:19:12","modified_gmt":"2016-02-24T17:19:12","slug":"it-starts-subprime-auto-loans-implode-in-your-bond-fund","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=18180","title":{"rendered":"It Starts: Subprime Auto Loans Implode (in Your Bond Fund)"},"content":{"rendered":"
\n

It Starts: Subprime Auto Loans Implode (in Your Bond Fund)<\/a><\/h3>\n

\u201cFears of an impending liquidity crunch in that asset class.\u201d<\/strong><\/p>\n<\/header>\n

\n

\u201cWhat is happening in this space today reminds me of what happened in mortgage-backed securities in the run-up to the crisis,\u201d U.S. Comptroller of the Currency Thomas Curry\u00a0warned in October<\/a>\u00a0about the auto loan bubble.<\/p>\n

And his warning is now becoming reality.<\/p>\n

Subprime auto loans aren\u2019t big enough to take down our megabanks, the way subprime mortgages had done. But they\u2019re big enough to take down specialized auto lenders and cause a lot of tears among investors that bought the highly rated structured securities backed by subprime and deep-subprime auto loans that are now defaulting at a\u00a0rate last seen during the days of the Financial Crisis.<\/p>\n

And they\u2019re big enough to knock the auto industry,\u00a0one of the few booming sectors in the otherwise lackadaisical economy, off its record perch. An auto-loan implosion\u00a0would start at subprime and work its way up, just like mortgages had done.<\/p>\n

The business of \u201crepackaging\u201d these loans, including subprime and deep-subprime loans, into asset backed securities has also been booming. These ABS\u00a0are structured with different tranches, so that the highest tranches \u2013 the last ones to absorb any losses \u2013 can be stamped with high credit ratings and offloaded to bond mutual funds designed for retail investors.<\/p>\n

Deep-subprime borrowers are high-risk. Typically they have credit scores below 550. To make it worth everyone\u2019s while, they get stuffed into loans often with interest rates above 20%. To make payments even remotely possible at\u00a0these rates, terms are often stretched to 84 months. Borrowers are typically upside down in their vehicle: the negative equity of their trade-in, along with title, taxes, and license fees, and a hefty dealer profit are\u00a0rolled into the loan. When the lender repossesses the vehicle, losses add up in a hurry.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

It Starts: Subprime Auto Loans Implode (in Your Bond Fund) \u201cFears of an impending liquidity crunch in that asset class.\u201d \u201cWhat is happening in this space today reminds me of what happened in mortgage-backed securities in the run-up to the crisis,\u201d U.S. Comptroller of the Currency Thomas Curry\u00a0warned in October\u00a0about the auto loan bubble. And […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[12583,3891,195,312,2564,12582,4254,4255],"class_list":["post-18180","post","type-post","status-publish","format-standard","hentry","category-economics","tag-abs","tag-auto-loans","tag-debt","tag-financial-crisis","tag-subprime-loans","tag-thomas-curry","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18180","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18180"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18180\/revisions"}],"predecessor-version":[{"id":18182,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18180\/revisions\/18182"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18180"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18180"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18180"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}