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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