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.

i
The Subprime Auto Loan Crisis Chronometer shows the risk of battles over loss allocation.
Jun 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

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…

Latest Posts

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, …

Whether or not you believe in global warming, the recent frequency of severe climate-related events – from mudslides to bomb cyclone snowstorms – suggests Thomas Friedman had it right years ago when he coined the phrase “global weirding.”  One would think that in this environment, the outlook for Property Assessed Clean Energy (PACE) financing, which makes energy efficiency possible for the average homeowner, would be sunny and bright.

Consider further that Bitcoin, a mostly speculative pursuit for which the mining of a single unit uses as much electricity as an average American home for two years,…

There is no doubt marketplace lending, by offering speed and flexibility not historically seen in traditional banking, has done its part to foster the “do it yourself” (DIY) era. At its core, the DIY mindset starts with a question – why pay someone to do a job or share your profits or glory, when you can do it on your own? And ideas come to fruition through the vast amount of information now available to model success. In this DIY age, it seems anyone can start a company, create a fund or even start a blog….

2018 may be the beginning of the end of an education finance system that has resulted in overburdened students and families struggling to pay back loans that were too high at their inception relative to the reasonable income potential of the degree earned. Change won’t come overnight, but potential solutions should be put in motion this year, mainly aimed at relieving the student loan debt burden.

Below are a few touchstones for change that would signal the beginning of the end of the current student debt cycle.

New Laws

Under the proposed Promoting Real Opportunity,…