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Miss a Payment? Good Luck Moving That Car
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Starter interrupt devices have been installed by U.S. auto loan lenders on about 2 million vehicles, and feeding the boom for making subprime loans by reducing the delinquency rate. Its a new virtual repo system unlike anything known before, described in this exceptional piece by Corkery and Silver-Greenberg, with implications that reach beyond borrowers to the safety of the U.S. financial system. It means the lenders have a false incentive to reach deeper into the pool of subprime borrowers with lower and lower credit ratings, with the securities marketed using these loans spread out over the entire financial system waiting for another implosion like the one in 2008. Consider that the subprime auto loans have reached 27% of total loans in 2013, and $145 billion of subprime auto loans were made in just the first quarter of 2014. At some point this could reach the 36% in 2006 before the implosion in subprime securities of 2008, destabilizing the U.S. and global financial system. Are the regulators again asleep at the job?
U.S. subprime auto loans reach 27% in 2013, reminiscent of the 36% reached in 2006 before the subprime loan financial crisis
09/24/2014
A little starter interrupt device disabling cars of borrowers missing a single payment has reduce the number of delinquent loans from above 20% to 7%, along the way raising privacy concerns, traffic safety concerns. This only increases the lenders (including credit unions) desire to make more subprime loans because they are very profitable at a time of low interest rates, and because of the demand for loans that can be marketed as securities in financial markets. Are regulators again going to sleep at the job?
Grouped Articles
Miss a Payment? Good Luck Moving That Car
New York Times 09/24/2014
U.S. car sales hit record high in 2015 - The Washington Post
Washington Post 01/06/2016
U.S. Car Sales Set Record in 2015
Wall Street Journal 01/06/2016
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