Timing Matters.

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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.
Oct 2017
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.

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Joseph Cioffi shared his insights with American Banker, authoring an article, “A Whole Lot of Hurt in Auto Lending May be Coming,” examining troubles on the horizon for subprime auto lenders and investors in subprime auto loan ABS. Joseph draws comparisons and significant distinctions between current market conditions and practices in the auto loan industry and the market forces and industry practices in subprime mortgage lending leading up to the financial crisis of 2008. Joseph anticipates auto lending will follow an inevitable cycle, and in the end the winners will be those who learn from the past and take corrective action now….

In this Structured Credit Investor article concerning the potential effects of Madden v. Midland Funding on marketplace lending platforms, Joseph provides suggestions for platforms seeking to adapt to the ruling and the potential for the ruling to shape the industry. Joseph notes, “if partner banks start to get more involved in the origination process so as to avoid the problems of Madden, these banks may start to question why they need the platforms at all and there is the potential that they may simply take over the process entirely.” Click here to view the full article….

Joseph Cioffi offers the following quote to Structured Credit Investor, concerning the Madden v. Midland Funding case, “Not only are marketplace lenders at risk, but so will be the sponsors and other participants in the securitization of marketplace loans to the extent loans are held unenforceable or interest rates are reduced. Experience shows that when cashflows to investors are reduced, litigation follows.” Click here to view the full article.