Subprime Auto Lending Soars As Fed Report Shows Spike In Loans To Underqualified Borrowers

[LiberalArkie]

When last we checked in on America’s auto loan bubble (which recently ballooned past the $1 trillion mark) the “visionary” ex-Santander execs over at Skopos Financial had just finished selling some $154 million in paper backed by a collateral pool wherein 75% of the loans were made to borrowers with credit scores less than 600.

14% of the loans were made to borrowers with no credit score at all.

That deal followed a $150 million securitization the company sold earlier this year in which a fifth of the borrowers had FICOs between 351 and 500.

What this represents is the resurrection of the infamous originate to sell model that was instrumental in exacerbating the housing bubble. Put simply: if you can offload the credit risk to investors, you don’t really care who you’re loaning money to. It’s moral hazard at its finest and it’s enabled by Wall Street’s securitization machine.

Snip


http://www.zerohedge.com/news/2015-11-19/subprime-auto-lending-soars-fed-report-shows-spike-loans-underqualified-borrowers

[drray23]

1. the thing is most people need a car to go to work

So, even if they have bad credit scores they need to be able to buy a car. Those companies are not in as bad as spot as the banks who were making mortgage loans to unqualified borrowers. At worst, they repossess the car and lose very little. The problem is more on the customer side where they are gouged with high interest rates.
Now, if I understand correctly what they did here is a bit more worrisome. They packaged these loans into derivative instrument and sold that. This may impede the ability of the investors to recoup the money if the loan goes south.

[pipoman]

3. Nobody needs a new car

Nor do they need a 72 month loan on that new car. It is insanity. And yes, lenders always lose hard dollars when they repossess cars..usually between 40 and 60% of the remaining loan balance is lost....my first career was owning a repossession company for 20 years.....

[TheBlackAdder]

4. The TV show "Adam Ruins Everything" just did a nice bit about how were were set-up to fail! nt

[mucifer]

2. Those sleazy commercials are all over tv

[Eleanors38]

5. A year ago, half of all used car loans were sub-prime and bundled.