If you thought the subprime default rate was obscenely high during the economic collapse, then, as the saying goes, you ain’t seen nothing yet.
According to Fitch Ratings, U.S. borrowers are defaulting on subprime auto loans at a higher rate than throughout the Great Recession. The delinquency rate – more than 60 days past due – topped its highest level since 1996 in March at 5.8 percent. The default rate in 2008 was five percent.
Lenders are already responding to the trend. Some banks are decreasing financing to applicants with poor credit histories, while others are raising the lending standards. And this appears to be working as the number of auto loans and leases given to subprime borrowers declined by 10 percent in January from the same time a year ago.
Bond sales supported by auto loans are unlikely to change anytime soon. Today, just 10 percent of the $437 billion of subprime auto loans have been securitized into ABS.
“ABS is a fraction of the total auto credit market, which is mainly funded on balance sheets,” Wells Fargo analyst John McElravey told Bloomberg. “If the pullback from subprime is more from the balance-sheet lenders, banks, then maybe securitization keeps moving along.”
This should be filed away for the future.
Also see:
Cheap debt is still bailing out automakers – how long will it last?
REPORT: Americans borrowing record auto loans, monthly payments hit $515
‘Trade-in treadmill’ causing credit risk for lenders in auto loan market
Was just explaining this concept to my students. It’s the end of the year, we have testing so I told them how to buy a car, what are credit scores and how it effects interest and much else. Life 101 stuff that few their age know. Apparently few older as well!