The Latest on Subprime Auto Lending ‘Bubble’ – How Real is It?

There’s a wide range of opinions on how subprime loans may affect auto financing later this year. Dealers that are doing a lot of business in subprime, and other “credit challenged” customers such as Buy Here Pay Here, are carefully watching where it’s heading. Here’s an overview of recent news……..

  • Equifax just released a report stating that the evidence doesn’t suggest that a “bubble” is forming. The report says that the lending landscape isn’t the same as it was in 2007 due to lenders having less of an appetite for risk and regulatory scrutiny is increasing. The report’s authors say that originations have been moving up to the higher end of the subprime credit score range, and that recently opened subprime loans have been doing well so far this year.
  • The Consumer Financial Protection Bureau (CFPB) is expected to announce a proposal this week on supervising the 40 largest nonbank auto lenders; that could start investigation of auto lenders by next year. CFPB is likely to include scrutiny of subprime loans in its investigations; last year, auto lenders made about $78 billion worth of auto loans to subprime borrowers. That went up from $43 billion in 2009, though it’s much than levels seen before the 2008 financial meltdown.
  • Some lenders don’t seem to be particularly concerned about the federal investigation; they’re planning about $2.3 billion in securities that are either predominantly backed by subprime loans and leases or include significant chunks of the debt.
  • Other subprime lenders are becoming worried that things are getting worse lately – signs have appeared showing some lenders are pushing it to the limit. They’re extending credit to particularly risky borrowers, or are making loans that are harder to repay.


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