Wednesday, November 15, 2017

Subprime Auto Delinquency Is Near Crisis Levels at Non-Bank


Bali news and views editor's comments: 


10 years ago, I warned that the United States was ready for a crash in real estate. One reason was that the subprime lending rates for real estate was outrageous and that anybody could qualify for a real estate loan regardless of what their credit rating was.

Fast-forward 10 years and during the last 24 months I've been warning of Auto subprime crisis. Many people don't have the credit worthiness for an automobile and will not pay the loan back. Therefore exposing to the US credit system to a major backlash.

In 2007 the real estate subprime crisis caused a crash in the world economy and  real estate prices in America dropped as much as 70%.

The subprime auto crisis is looming great now and could cause the same damage.

Talking to a good friend of mine, an American professor of economics this morning  he believes it's time to the US stock markets and funds . I agree

Better load up on silver, gold and other tangible investments that will benefit from crisis and also from potentially higher inflation which I see coming in 2018 and 19.

Remember that inflation is like the tide, it raises all boats.
It will also raise real estate prices in areas that have recently had corrections such as Bali.

I will be talking about this in  more and more detail at my forthcoming real estate seminars on November 30 and December 2 in Bali
Attendance is free.

You got nothing to lose and you will learn everything you ever wanted to know about Bali real estate, including the laws, regulations, locations, etc. 
Free Seminar Schedule:
Bali, Emerald Villas, Jl. Karangsari, # 5, Sanur, Bali, Indonesia.
(1) Thursday Nov. 30th.. 6:30 PM - 7:30 PM.

(2) Saturday Dec. 2nd.. 2:00 PM - 3:30 PM.

LendersBy
Gabrielle Coppola
November 15, 2017, 12:00 AM GMT+8 Updated on November 15, 2017, 4:32 AM GMT+8
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N.Y. Fed report shows late-payment divergence by lender type
In the aggregate, lenders are hewing toward prime borrowers

There’s a growing rift in car debt: Delinquent subprime loans are nearing crisis levels at auto finance companies, while loan performance at banks and credit unions has been improving, data from the Federal Reserve Bank of New York show.


Almost 9.7 percent of subprime car loans made by non-bank lenders -- including private-equity-backed firms catering to car dealers -- became 90 or more days past due in the third quarter, the highest annualized rate in more than seven years, according to the New York Fed’s quarterly report on household debt and credit. That’s more than double the 4.4 percent rate for subprime loans made by traditional banks, a number that’s been falling pretty steadily since the end of the financial crisis.


“The subprime delinquency rates are really where the pressure is,” analysts and executives at the Fed wrote in a blog post accompanying the report. “The delinquency rate -- even among borrowers in the same credit score bucket -- is considerably higher and rising on the auto finance side.”



The divergence points to possible differences in underwriting that go beyond credit scores, the authors said.

Auto finance companies have long dominated the subprime lending area, originating and holding more than 70 percent of auto loans for the riskiest borrowers, according to the New York Fed. Their share has almost doubled since 2011 and now comprises more than $200 billion after years of booming car sales and fierce competition. Meanwhile, many traditional banks have been trimming their portfolios to curb exposure to riskier auto loans.

Related: Car sales to fall again as auto lending tightens, Moody’s says

The Fed didn’t names individual companies that have seen an increase in delinquency rates. A Nov. 8 report by S&P Global Ratings said issuers of deep subprime auto-backed bonds that have experienced high losses have included Exeter Finance Corp., American Credit Acceptance LLC and Drive Financial Services, a unit of Santander Consumer USA Holdings Inc.

In the aggregate, lenders are hewing toward prime borrowers and reducing access to debt for consumers with weaker credit scores. New loans and leases to the most credit-worthy borrowers rose 5.4 percent to $46.1 billion in the third quarter from the previous three months, while loans to consumers with the lowest scores fell 8.3 percent to $29.6 billion, the data show.


There’s $1.2 trillion in auto loans outstanding in the U.S., up $23 billion from the previous quarter. About 20 percent of new car loan originations are for borrowers that have a credit score below 620, according to the Fed report.

“Although the impact on the larger financial sector may be muted, there are over 23 million consumers who hold subprime auto loans,” the researchers wrote. “These consumers may find their credit reports further damaged after a default or encounter further financial difficulties after experiencing a car repossession.”

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