Here is some bad news for investors who’ve parked their money into billions of dollars of securities backed by auto loans: a growing number of borrowers with poor credit are falling behind on their monthly auto loan payments.
According to new data from Wells Fargo & Co. (via Bloomberg News), delinquencies on subprime auto loans coupled with bonds spiked in January to 4.7 percent, the highest since 2010. The default rate inched one percent higher in January from 11.3 percent to 12.3 percent, which is also a level unseen since 2010.
What this means, the analysts say, is that increasing delinquency rates could mean more loans could soon end up in default. This could be due to a boost in initial unemployment claims. For instance, Texas auto finance firms have been experiencing spikes in net losses over the last six months, which coincides with the spike in job losses thanks to the collapse in the price of oil.
Securities that are backed by auto loans are designed to take on a portion of anticipated defaults. However, some fear that growing losses on auto loan securitization may go beyond the initial estimates because of falling underwriting standards.
Whatever the case, Wells Fargo analysts note that the data should be watched more closely, particularly when economic growth is barely moving anywhere significantly.
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