Recent Subprime Auto Loans Starting to Sour
Mar 5th, 2014 @ 9:16 PM by Amber Nelson
After years of falling delinquencies on U.S. car loans, there are signs that loosening lending standards may have been too lenient on those with the poorest credit ratings, according to ratings company Standard & Poor’s.
A recent S&P report found that 7.59 percent of loans in all auto-loan backed securities – bundles of car loans sold on the secondary market to investors – were delinquent by 30 days or more at the end of September, an increase of 1.43 percent from the previous year. The late payment rate hasn’t been that high since at least 2010.
It is believed that most of those soured loans were subprime loans and that delinquencies probably have risen even more since September 2013.
In the last couple of years, auto lenders have made it much easier for those with less-than-perfect credit to get back into the car market. “Subprime auto lending from banks, captive finance companies and credit unions continues to increase and is pressuring more traditional subprime lenders to lend to ever-weaker borrowers to maintain lending volumes,” Moody’s Investors Service analysts wrote in a Jan. 10 report.
And that means rising delinquencies and defaults were bound to happen. “We’re at this inflection point,” said S&P analyst Amy Martin in BusinessWeek. “Now that they are opening the lending spigot, it’s only natural that losses are starting to rise.”
How significant those losses will be may be determined by how quickly the employment numbers improve and the economy in general picks up steam.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.