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.
Aug 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.

Latest Posts

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,…

ABS Issuances, by the Numbers

Nine ABS deals totaling $3 billion closed in Q2 2017, a 76% increase from Q2 2016. Q2 ABS issuances included approximately $2 billion in consumer (up 28% versus Q1 2017) and approximately $1 billion in student (down 5% versus Q1 2017). All deals were rated. Total ABS issuance is expected to be over $11 billion in 2017.

Performance and Practices

Performance continued to weaken as delinquencies and charge-offs increased in Q2 for personal, student, and subprime auto loans. Prime credit card portfolios are showing multi-decade delinquency rate lows….

Originations and Issuances, by the Numbers

Student loan debt rose to $1.34 trillion in Q2 2017, up from $1.31 trillion at the end of 2016, and now accounts for 10.4% of the $12.8 trillion in total household debt.

In Q2 2017, $3.3 billion in student loan asset-backed securities (SLABS) were issued, down 34% versus year ago. Of the total first half 2017 SLABS issuance of $7.9 billion, student loan refinance (refi) ABS issuances were $2.3 billion, a 30% increase versus year ago. Traditional private SLABS issuances accounted for $0.8 billion, a 54% decrease versus year ago….

Originations and Issuances, by the Numbers

$3.7 billion has been advanced to homeowners under residential Property Assessed Clean Energy (R-PACE). Additionally, nearly $500 million has been advanced for commercial PACE (C-PACE) projects. Although R-PACE currently accounts for just .03% of the $12.8 trillion in household debt, it is one of the fastest growing sources of consumer credit and expected to double within the next year.

Through May 2017, the cumulative issuance of R-PACE loan securitizations between Renovate America, Ygrene, and Renew Financial reached $3.4 billion, up from $2.7 billion through December 2016 and $1.03 billion through December 2015….

It’s been getting tougher for anyone to mount strong opposition to the Consumer Financial Protection Bureau’s (CFPB) rule banning mandatory arbitration clauses after news broke of more misdeeds at Wells Fargo, which has admitted to forcing borrowers to pay for auto insurance they didn’t need. Although Senate approval of the rule remains uncertain, banks and other lenders should prepare for it to take effect. If that’s a benefit to consumers, it’s one they are going to pay for. Indeed, consumers should prepare for higher costs as a consequence of that preparation and the uncertainty deregulation might fuel….