Timing Matters.

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Subprime Auto Loan Crisis Chronometer

Crisis /krīsis/: A turning point that results in a battle over loss allocation.

Will there be a crisis? Are we near one?

Practices and factors similar to those contributing to the subprime mortgage meltdown are now impacting subprime auto lending and related ABS. The gauges reflect our take on how they are impacting risks for lenders and investors.

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The Subprime Auto Loan Crisis Chronometer shows the risk of battles over loss allocation.
Dec 2018
Lending Practices and Factors i
Subprime originations have trended down but securitization volume continues to increase. Subprime delinquencies in the secondary market are on the rise and have surpassed peak levels. Risky practices are exposing specific lenders and their investors to losses, as evidenced by the closure of a number of smaller subprime auto lenders earlier this year.
ABS Practices and Factors i
Credit enhancements such as excess spread, overcollateralization and subordination have increased in new deals and continue to create a buffer from riskiest lending practices. Investors have not yet felt the sting of riskiest practices.
Auto Market Risks i
New and used vehicle prices are at all-time highs, but sales incentives and high supply of off-lease vehicles are accelerating depreciation and driving up negative equity on trade-ins. Advances in technology will likely accelerate depreciation further.

Timing Matters.

Stay Ahead with Credit Chronometer.

Featured Post

No one had suffered any losses, or at least it seemed no one could remember having done so. S&P had not downgraded any subprime auto loan ABS since just after the turn of the century or any other auto loan ABS since 2011. Credit enhancements were widely deemed sufficient to absorb any worst-case scenario. With a long track record of success and protections in place, few blinked when one non-bank lender, Honor Finance, went decidedly deep…

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Historically, investors in subprime auto asset-backed securities (ABS) have been able to sleep well at night. They have rested easy in part because credit enhancements in securitizations have protected them from losses.  Today, due in large part to the safety expected from credit enhancements, rumblings about the parallels between subprime auto lending and pre-financial crisis subprime mortgage lending – and the cataclysmic end those parallels could portend – have barely disturbed the subprime auto ABS market.

Overcollateralization (O/C) rates are often touted as particularly protective for subprime auto ABS.  It’s true, of course: As investors have rightfully demanded greater O/C rates on riskier pools,…

No one had suffered any losses, or at least it seemed no one could remember having done so. S&P had not downgraded any subprime auto loan ABS since just after the turn of the century or any other auto loan ABS since 2011. Credit enhancements were widely deemed sufficient to absorb any worst-case scenario. With a long track record of success and protections in place, few blinked when one non-bank lender, Honor Finance, went decidedly deep down the credit scale.

It was 2016 and Honor Finance had just brought its HATS 2016-1 securitization to market….

Move over mortgages – there’s a new kind of real estate that could benefit from a new type of funding. As higher interest rates and rising prices are making affordable housing a challenge in many markets, cities can fight the problem with a small-scale solution – accessory dwelling units (ADUs).

What’s an ADU?

ADUs are additions (attached or detached) to homes or converted spaces within already existing buildings that can be used as rental units. Local governments on the west coast have become friendlier to the development of ADUs as a new housing option for strapped markets….

Bright, shiny objects are hard to resist. Like the glowing orb cast by the anglerfish – the last thing its prey sees before the deadly bite – subprime lending is back with the potential for profits shining like a beacon. There are several ways for lenders and investors to grab a piece of the action, but are the latest moves tempting a fate similar to 2007?

There’s smoke . . .

Although the housing market has been a relative sea of calm in recent years, the mortgage market has slowed down….

It’s been said that a war doesn’t determine who is right, but rather, who is left.

Although there’s been much talk of an epic battle between states and the federal government that will determine the scope of federal preemption in the student loan space, it’s not going to be much of a fight if only one side shows up.  If current trends hold, it looks like states will be left to dominate the legal landscape of consumer protection.

In the wake of statements by the resigning student loan ombudsman at the Bureau of Consumer Financial Protection that current political leadership has repeatedly undermined the Bureau’s efforts to protect consumers,…

It’s back to school time, and there’s so much noise about a student loan crisis that there’s a need to corral all the noisemakers and to gain an understanding of what’s actually going on. Sister Mary Elephant had the right idea when she scolded her classroom to be quiet some 40 years ago.

It does sound pretty bad. Student debt surpassed $1.5 trillion earlier this year, and it’s estimated that nearly 40 percent of borrowers will default on their student loans by 2023. But talks of a collapse are not marrying up with performance and other data….