Usury has made quite a comeback from the dust heap of old law treatises to become a crucial concept that has shaped modern credit markets. It recently returned to public awareness in marketplace lending, where online lenders have avoided making loans in states comprising the Second Circuit, such as New York, due to an unfavorable usury decision. Now, light has been shed on subprime auto financing and an exception to usury laws that’s creating risk for an already shaky market.
Usury: It’s An Old Concept …
New York’s usury laws were put on the books as early as 1787 to protect desperate borrowers from being preyed upon by unscrupulous lenders who use that desperation as leverage….
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 reasons. For example, new technology may emerge that leapfrogs the manufacturer’s current offering, or production start-up problems may prevent the manufacturer from fulfilling demand….
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,…
Joseph Cioffi recently sat down with Raul Panganiban of ValueWalk, a site covering the latest financial news impacting hedge funds and asset managers with an emphasis on value investing, for their podcast “ValueTalks.” Joseph and Raul discussed the importance of credit enhancements in subprime auto securitizations, and in particular, Joseph’s views regarding their vulnerability.
The discussion builds on Joseph’s thoughts first shared on a post on Credit Chronometer. Following the warnings in the post, new issuances have been marked by higher credit enhancements.
Listen to the full podcast here….