Tags: regulatory | subprime | auto | loans

WaPo: Regulatory Vigilance Warranted on Frothy Auto Loans

Thursday, 14 Aug 2014 07:12 AM

By Dan Weil

As U.S. auto sales surge, so do subprime auto loans, raising worries of a bubble.

A whopping $146 billion of subprime auto loans were issued in the first quarter, up 15 percent from a year earlier, according to credit rating agency Experian.

Regulators have begun to take notice of the trend, and that's a good thing, according to a Washington Post editorial.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

The Office of the Comptroller of the Currency (OCC) said in a recent report that "signs of risk in auto lending [are] beginning to emerge," with looser underwriting rules and a "substantial" increase in lenders' average loss per vehicle.

But investors desperate for yield in a low-interest-rate environment are jumping at bonds backed by the loans, The Post notes. "It's a dynamic reminiscent of the subprime mortgage bubble that helped cause the Great Recession," the editorial states.

While subprime auto loans don't represent the same systemic threat as subprime mortgages, "the OCC report strikes us as just the kind of regulatory vigilance the situation requires," the editorial states.

The Justice Department is on the case too, which might be helpful, according to The Post.

"No, a subprime auto-lending bubble probably can't and won't cripple the U.S. economy. But the longer it goes on, the more people will get hurt when it abruptly stops. It would be better for all concerned to tap the brakes now than to risk a crash later on," The Post notes.

Post editors aren't the only ones concerned about the situation. "It appears that investors have not learned the lessons of Lehman Brothers and continue to chase risky subprime-backed bonds," Mark Williams, a former bank examiner with the Federal Reserve, tells The New York Times.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

Related Stories:

© 2015 Moneynews. All rights reserved.

Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Zip Code:
Privacy: We never share your email.
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

Larry Summers, Investors Doubt Yellen Deflation-Fighting Formula

Thursday, 29 Jan 2015 07:42 AM

Janet Yellen is betting she has the formula for fending off deflationary forces. Investors and some of her fellow econom . . .

Pending Home Sales Tumble Despite Lower Mortgage Rates

Thursday, 29 Jan 2015 10:23 AM

Fewer Americans signed contracts to buy homes in December, a sign that low mortgage rates have yet to coax more buyers i . . .

SocGen: Commodities Crash Favors Developed Markets in Short Term

Wednesday, 28 Jan 2015 06:14 AM

Falling commodity prices favors investments in developed countries over emerging markets during the first half of this y . . .

Most Commented
Top Stories

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

America's News Page
©  Newsmax Media, Inc.
All Rights Reserved