Timing Matters.

Stay Ahead with Credit Chronometer.

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.

The Subprime Auto Loan Crisis Chronometer shows the risk of battles over loss allocation.
Mar 2018
Lending Practices and Factors i
Subprime and deep subprime lending and securitization have risen sharply; delinquencies are on the rise, but not yet above peak levels. Risky practices exposing specific lenders and their investors to losses; other lenders will be similarly exposed if they chase market share.
ABS Practices and Factors i
Credit enhancements such as excess spread, overcollateralization and subordination continue to create a buffer from riskiest lending practices. Investors have not yet felt the sting of riskiest practices.
Auto Market Risks i
New vehicle prices are at all-time highs, but sales incentives and high supply of off-lease vehicles are depressing used vehicle prices, 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

New Tech, New Risks There are always risks to forging a new path. When it comes to electric vehicles (EVs) like the Model S and Model X that back Tesla’s latest deal, there are peculiar risks beyond those that normally accompany auto asset-backed securities (ABS). Given a lack of historical data, there is the risk of uncertain residual or resale values, and moreover, the potential for those values to fall below expectations for any number of…

Latest Posts

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,…

College students – prepare to be educated on a new case of Hobson’s choice, a term typically used to describe situations where there appears to be a choice available, but in reality, there is no choice at all.  It’s named after a stable owner in England who rented out horses, but would only offer customers the horse nearest the stable door.  But this time around, the concept is reflected in a proposed bill that would offer student loan borrowers debt elimination in exchange for delaying their Social Security qualifying age.  Whether they take the deal or continue to repay their loans in full,…

Joseph Cioffi recently sat down with William Hoffman, Associate Editor of Auto Finance News, for an episode of “The Roadmap,” a podcast from the Center for Auto Finance Excellence, a site dedicated to providing best practices for auto finance industry executives and investors. Joseph and William discussed trends apparent in recent subprime auto loan securitizations, and the outlook for the market going forward, including a close look at the interrelationships between credit enhancements, credit quality and credit ratings.

The discussion builds on Joseph’s thoughts first shared on a post on Credit Chronometer….

Wells Fargo is being put on a highly restrictive diet by the Federal Reserve and won’t get any relief until its compliance and governance shape up.  Under the terms of the Fed’s Consent Order, Wells cannot grow its consolidated assets beyond the total consolidated assets reported at the end of 2017.  Although Wells is dismissing the effect of the Order as a nothingburger, if there’s really no effect, it’s probably because Wells already lacks opportunity for growth in deposits and lending as a result of its recent scandals and the massive consumer distrust that has followed. …

If the subprime auto loan asset-backed securities (ABS) market collapses, any post-mortem is likely to begin and end with the underlying auto market.  Of course, it won’t all be about sales practices and consumer trends – there would also likely be closely-related contributing factors in lending and ABS practices.  But despite growing concerns, following the 2018 Detroit Auto Show, it appears the auto market is poised for a year of activity centered mainly around “innovations” that are inconsequential to the larger issues that are sure to buffet the industry.

If Detroit is any indication,…

Ten Years Gone, but the Memory Remains

Litigation related to pre-financial crisis subprime mortgage lending and securitization has resulted in a decade-long hangover for many of those who participated in the boom times. The boom actually lasted only four or five years for most participants, but more than a decade later, many are just now drawing closer to resolution of legacy disputes.  The lingering headache for lenders, sponsors, trustees and investors explains the caution that has been the hallmark of subprime residential mortgage-backed securities (RMBS) post-financial crisis.

Since subprime lending started its comeback in 2009, …