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August 15, 2014

Riskiest subprime auto loans coming from car companies: Fed study

“The surge in subprime auto loans since the end of the recession has been most pronounced among riskier borrowers, and auto finance companies typically tied to car manufacturers are leading the parade, according to a new study released by the New York Federal Reserve Bank on Thursday.

“Banks make up only a small share of the subprime auto lending, the study found.

“The dollar value of originations to people with credit scores below 660 has roughly doubled since 2009 while originations to other credit score groups increased by only about half.

“Delinquency rates highlight the different risk appetites. The quarterly flow of 30-day delinquency for bank loans has been about 1% in recent years and about 2.5% for loans by auto finance companies.

“General Motors reported last month that the Justice Department is probing its subprime auto loans.”

“There has been a fairly aggregious widespread drop in lending standards, and a significant increase in lending to less credit worthy borrowers,” said Dennis Kelleher, the president of Better Markets.

“Auto finance companies, typically affiliated with car manufacturers, fall under the jurisdiction of the new Consumer Financial Protection Bureau.”

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Read the full Market Watch article by Greg Robb here

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