Sunday, November 2, 2014

Today's links

1---SEC subpoenas Ally Financial over subprime auto lending, Reuters




The U.S. Securities and Exchange Commission is investigating the subprime auto lending and securitization practices at No. 2 U.S. auto lender Ally Financial Inc, the company said on Friday.
Since the start of the year, Ally has issued $2.75 billion in three deals of bonds backed by subprime auto loans, down from $4.06 billion across four deals last year...
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Ally has previously said it was being investigated by the Justice Department for potential fraud over mortgage bonds but has not disclosed any investigation by the department over subprime auto issues.
The issuance of bonds backed by subprime auto loans has risen steadily since 2011, with 2014 on pace to be the strongest year of issuance since the financial crisis, according to a Wells Fargo research report released on Tuesday.


2---New technology makes subprime auto lending usury easy and profitable, MF


Subprime auto loans
NYT, 24 September 2014. Click to enlarge.


Auto loans to borrowers considered subprime, those with credit scores at or below 640, have spiked in the last five years. The jump has been driven in large part by the demand among investors for securities backed by the loans, which offer high returns at a time of low interest rates. Roughly 25 percent of all new auto loans made last year were subprime, and the volume of subprime auto loans reached more than $145 billion in the first three months of this year.


3---Easy Lending to Risky Borrowers Makes a Comeback, CP


4--Auto loans are a driver of the expansion, but might be running out of gas, FM


Because auto sales have been one of the major drivers of the recovery. As shown by Atif Mian and Amir Sufi in “Another Debt-Fueled Spending Spree?“, at their website, 31 March 2014:
House of Debt: auto sales
House of Debt: auto sales, 31 March 2014
With little growth in real wages for most Americans since 2009, how have we managed to splurge on new cars? Mian and Sufi show the answer: a surge in auto loans:


The new subprime boom might already have played out. From “Subprime Auto Loan Performance: The Best Is Behind Us“, Amy S Martin and Naveen C George, Standard & Poor’s, 26 February 2014:
In our opinion, we’re at a turning point with respect to subprime auto loan performance, similar to where we were in 2006 (at the peak of the previous expansion).
The numbers support their conclusion.
  1. The 60 Day Delinquency rates are rising. The rate on prime auto loans is at a 2 year high. The rate on subprime auto loans has risen strongly since the early 2012 trough, and are now at the highest since early 2010.
  2. Net Loss Rates (below): Both prime and subprime made a trough in early 2012. Both are now rising; subprime is the highest since early 2010.
  3. Recovery Rates (below): Prime hit a peak in early 2012 and are now the lowest since early 2010. Subprime is at the lows since early 2010.
5---More car loans exceed 6 years as prices rev, USA Today


More new-car buyers are opting for long loans stretching out past six years or for leases to try to keep monthly payments in check as car prices rise.
Loans with terms longer than six years — 73 to 84 or more monthly payments — jumped 19% in the fourth quarter compared with the period a year earlier to 20.1% of all new vehicle loans, according to Experian. All other loan categories declined or were basically flat.


That came as the average amount financed for a new car was the highest since 2008, averaging $27,430 in the quarter, Experian says, with an average monthly payment of $471. Long-term loans make costlier cars seem more affordable, but leave buyers with higher overall costs for the car and more time owing more than it is worth.
J.D. Power's Power Information Network (PIN) found the long-loan trend continued into last month with a record 33.1% of loans at 72 months or longer, with 84 months or longer at 3%.


6---Another Debt-Fueled Spending Spree?, House of Debt
Here is year-over-year spending growth on autos and other retail goods for 2012 and 2013. Spending has increased between 7% and 9% in these years. For other goods, spending increased by 5% in 2012 and only 3% in 2013. Without autos, 2013 spending looks a lot worse than 2012. If you want these in real terms, you can subtract off 2% to get a pretty close estimate.
houseofdebt_20140331_2
So what is wrong with autos driving the recovery?...




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