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.

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

As we said in our last post regarding vulnerability in credit enhancements and litigation risk, subprime auto ABS investors have historically slept easy in light of ample credit enhancements that have provided a protective cushion from losses. Based on the reactions, it seems some have been stirred from their slumber. The question now is what’s next?  Will market participants, after kicking the tires, find reason for alarm or will they hit the “snooze” button and go…

Latest Posts

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….

Forget Hamilton! Andrew Jackson has re-entered the nation’s consciousness, though it’s hardly been an auspicious return.  Lately, he’s been seen photobombing one of the most polarizing presidents in modern history and next year he is supposed to be replaced on the $20 bill. All of the renewed attention has reminded people of the more unsavory historical accounts of Jackson’s life — from alleged trading of slaves to the Indian Removal Act.  But the meteoric rise in the value of bitcoin should have the public thinking about another calamity Jackson is blamed for — the Panic of 1837….

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,…

The massive data breach at Equifax has quickly spurred a number of lawsuits on behalf of consumers. That was to be expected. Far more surprising is the fact that financial institutions have started to pile on, filing their own suits against the credit reporting agency. It’s a bold strategy, and one that carries considerable risk. Any financial institution that is claiming victim status in this disaster that has personally affected half the U.S. population, and that is competing with individual consumers for money damages, could see its efforts backfire. In fact, it is easy to imagine the financial institutions’ lawsuits drawing such unflattering attention to their dealings with credit reporting agencies that they redirect the public ire,…

Originations and Issuances, by the Numbers

New mortgage originations reached $421 billion in Q2 2017, down from $427 billion in Q2 2016 (a 1.41% decrease). Housing debt reached $9.14 trillion in Q2 2017, up from $8.84 trillion in Q2 2016 (a 3.82% increase). Housing debt, at 68% of the $12.8 trillion in national household debt, continues to be far and away the leading form of consumer debt in the United States. Even so, quarterly originations are less than half than they were at their peak of $869 billion in Q3 2005,…