Subprime Auto Delinquencies Climb Close to Recession Peaks
Oct 5th, 2016 @ 1:04 PM by Amber Nelson
American consumers with bad credit are falling behind on their auto loans at an alarming rate, reaching levels not far behind their all-time highs during the Great Recession.
According to data from Fitch Ratings, the 60 days or more delinquency rate on subprime auto loans rose in August to 4.86 percent, up 6 percent from July and up 22 percent from the previous year. Today’s rate is getting dangerously close to the December 2008 peak of 5.04 percent.
It is also disturbing that subprime delinquency rates have risen each month since February of this year and Fitch predicts that they will continue to climb through the end of 2016. Annual net losses on subprime auto loan securities jumped to 8.89 percent in August, up 20 percent from the month before and up 27 percent from August 2015. Fitch expects ANL rate to reach 10 percent by year’s end. The loss rate peak was 13 percent in January 2009.
Hylton Heard, senior director of Fitch’s U.S. asset-backed securities group, pointed out that even though rates are pushing Great Recession highs, they do not pose quite as large of a threat to the economy as certain fundamentals, like the unemployment rate, are doing better than in the 2008-2009 period.
Subprime losses are increasing partly due to many subprime loans made with weaker underwriting standards between 2013 and 2015. Some losses are also a result of longer loan terms (those with terms of 60 months or more) that make it difficult for car owners to have any equity in their vehicles when they need to sell. The number of used vehicles available for sale is also growing, making it even harder for owners to sell their older vehicles at a profit.
Prime loan delinquencies have also been rising although at a much lower level. The 60 day-plus delinquency rate increased to 0.41 percent, a 17 percent jump from a year ago.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.