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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.

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

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Joseph Cioffi contributes to Blueshift Research’s report featuring an in-depth look into subprime auto loans from a diverse range of industry perspectives, including, new and used car dealerships, repossessors and finance companies. Regarding the inevitable comparison to subprime mortgage lending, Joseph notes, “Large financial institutions were making large bets in that market. It was a widespread phenomenon. The subprime auto loan market may become a very large problem for a more contained market. It doesn’t carry the systemic risk of the subprime bubble.” Click here to view the full article.

In a recent American Banker article, “Crisis in Student Loan Servicing is Building,” Joseph Cioffi discusses how actions against the largest student loan servicer, Navient, may expose improper practices in student loan servicing that are contributing to the student loan debt crisis. As Joseph notes, in a similar way, actions against subprime mortgage servicers exposed issues that contributed to the subprime mortgage fallout. Joseph notes the total impact of servicing issues is unknown, and it may in fact be too late for servicers to avoid litigation, but there is always room for improvements in servicing practices which,…

Joseph Cioffi contributes his insights to this American Banker article that provides perspectives from industry insiders regarding the trends affecting auto loan performance, including longer maturities on used auto loans. “Borrowers can get underwater very easily on a used car with a 7-year loan,” Joseph said. Click here to view the full article.

This Structured Credit Investor article highlights Joseph Cioffi’s impressions of the recent CFPB v. Navient case and how the spotlight on Navient may reveal systemic issues in student loan servicing, which could result in further litigation. As Joseph points out, “there is the issue down the line that we could see more lawsuits like the Navient one come to light and particularly servicers could see more lawsuits against them.” Click here to view the full article.

Joseph Cioffi offers ValueWalk an in-depth look into the lawsuit against Navient, the largest student loan servicer. Joseph shares his thoughts on the similarities with the subprime mortgage crisis, growing sentiment in favor of student loan borrowers and the effect of the new presidential administration on the industry. Joseph states, “Prior to 2007, few, if any, knew how overburdened, outmanned and poorly equipped subprime mortgage servicers were to deal with widespread defaults…” Click here to view the full article.