Tags: Sub-Prime | Auto Loan | Financial | Crisis

Zandi: 'Credit Quality Eroding Now and Quickly' in Sub-Prime Auto Loan Market

By    |   Friday, 09 January 2015 11:27 PM

Could the sub-prime auto loan market turn into the next financial crisis?

"Borrowers who took out auto loans over the past year are missing payments at the highest level since the recession," The Wall Street Journal reports.

And economists are noticing. "It’s clear that credit quality is eroding now, and pretty quickly," Mark Zandi, chief economist at Moody’s Analytics, told the paper.

Regulators are noticing too — noticing that banks are loosening their lending standards. "We’re putting banks on notice that we have concerns," Darrin Benhart, of the Office of Comptroller of Currency, told The Journal. "It’s definitely an area that warrants some attention."

The situation might lead you to wonder if this could develop into something as large as the sub-prime mortgage debacle, which sparked the financial crisis of 2008. But keep in mind that the auto loan market totals $948 billion, compared to $8 trillion for the mortgage market.

Still, more than 8.4 percent of sub-prime borrowers who garnered auto loans in the first quarter last year missed payments by November, according to Moody’s.

A Bloomberg story last year analyzed potential problems in the market for bonds backed by auto loans — a market that totaled $168 billion in October.

"Investors are basically taking the issuer’s word that they follow certain procedures, and there is opportunity for fraud," Eugene Grinberg, a former analyst who structured sub-prime auto asset-backed bonds before co-founding a market software firm, Solve Advisors, told Bloomberg.

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Could the sub-prime auto loan market turn into the next financial crisis? Borrowers who took out auto loans over the past year are missing payments at the highest level since the recession, The Wall Street Journal reports.
Sub-Prime, Auto Loan, Financial, Crisis
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2015-27-09
Friday, 09 January 2015 11:27 PM
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