{"id":19001,"date":"2016-03-18T11:22:50","date_gmt":"2016-03-18T16:22:50","guid":{"rendered":"http:\/\/olduvai.ca\/?p=19001"},"modified":"2016-03-18T11:22:50","modified_gmt":"2016-03-18T16:22:50","slug":"subprime-auto-loans-the-next-shoe-to-drop","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=19001","title":{"rendered":"Subprime Auto Loans: the Next Shoe to Drop?"},"content":{"rendered":"

Subprime Auto Loans: the Next Shoe to Drop?<\/a><\/h3>\n

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Booming auto sales\u00a0have more to do with low rates and easy financing than they do\u00a0with the\u00a0urge to\u00a0buy a new vehicle.\u00a0 In the last few years,\u00a0car buyers have borrowed nearly\u00a0$1 trillion to finance\u00a0new and used autos.\u00a0\u00a0Unfortunately, much of that money was lent to borrowers who have\u00a0less-than-perfect credit and who\u00a0might not\u00a0be able to repay the debt. Recently there has been a surge in delinquencies among subprime borrowers whose loans were packaged into bonds and sold to investors. The situation is similar to the trouble that\u00a0preceded the Crash of 2008 when prices on subprime mortgage-backed securities (MBS)\u00a0suddenly collapsed\u00a0sending the global\u00a0financial system\u00a0off a cliff.\u00a0 No one expects that to happen with auto bonds, but\u00a0story does help to illustrate that the regulatory problems still haven\u2019t been fixed.<\/p>\n

In a recent article in the\u00a0Wall Street Journal,<\/em>\u00a0author Serena Ng\u00a0uses the performance of a bond issue called Skopos Auto Receivables Trust\u00a0to explain what\u2019s going on.\u00a0She says:<\/p>\n

\u201cThe bonds were built out of subprime auto loans and sold in November. Through February, about 12% of the underlying loans were at least 30 days past due, a third of which were more than 60 days delinquent. In another 2.6% of loans, borrowers had filed for bankruptcy or the vehicles had been repossessed.\u201d\u00a0 (\u201cSubprime Flashback: Early Defaults Are a Warning Sign for Auto Sales<\/a>\u201c,\u00a0Wall Street Journal<\/em>)<\/p><\/blockquote>\n

Check out those dates again. If a loan, that was issued in November, is 60 days delinquent by February, it means the borrower never even made the first payment on the debt. How can that happen unless the lender is deliberately fudging the\u00a0underwriting to \u201cslam the sale\u201d?<\/p>\n

It can\u2019t, which means that\u00a0dealers are intentionally lending money to people they\u00a0know won\u2019t be able to pay them back.<\/p>\n

But why would they do that?<\/p>\n

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

Subprime Auto Loans: the Next Shoe to Drop? Booming auto sales\u00a0have more to do with low rates and easy financing than they do\u00a0with the\u00a0urge to\u00a0buy a new vehicle.\u00a0 In the last few years,\u00a0car buyers have borrowed nearly\u00a0$1 trillion to finance\u00a0new and used autos.\u00a0\u00a0Unfortunately, much of that money was lent to borrowers who have\u00a0less-than-perfect credit 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":[6035,5493,175,195,200,431,7202,2562],"class_list":["post-19001","post","type-post","status-publish","format-standard","hentry","category-economics","tag-auto-sales","tag-counterpunch","tag-credit","tag-debt","tag-default","tag-interest-rates","tag-mike-whitney","tag-subprime-auto-loans"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19001","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=19001"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19001\/revisions"}],"predecessor-version":[{"id":19002,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19001\/revisions\/19002"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19001"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19001"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19001"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}