We all know that auto loans delinquencies are near all time highs and quickly on the rise, and Empire Research has been reporting on this for some time, but there is a part of this seedy market that is becoming a problem and that is the subprime auto loan market, which when you hear subprime think shit.
Here is Margot Robbie to explain it better, enjoy the show…
Now here is a current look based on credit score what demographics are defaulting the most and you guessed it if you thought the lower the credit score the higher the risk of default!
Remember over 7 million auto loans are 90 days or more delinquent now and between prime and subprime loans delinquencies have topped out at all time highs.
Santander Consumer USA holdings is one of the largest subprime auto loan providers, we have mentioned them before actually, turns out that their loans are souring up at the fastest rate since 2008, were talking just months after getting the loans. This signals growth problems in the market or downright fraud which Santander Consumer has had problems with in the past. This is the same exact issue that happened during the 2009 financial crisis but with housing, mortgage loans started to sour within months of being made.
Santander Consumer has bundled these subprime auto loans into bonds which they have sold to bond investors, with how quick these notes are going bad, they may be obliged to buy the loans back, shifting any potential losses on the loans to the original lender.
“This could eventually be a problem for the company and impact its actual performance,” said Kevin Barker, an equity analyst at Piper Jaffray & Co. Souring loans can cut into profitability, he said, adding that the company can raise its lending standards to reduce losses on new financing it provides.
Santander Consumer had $26.3 billion of subprime auto loans as of June 30 that it either owned, or bundled into bonds, according to a report from S&P Global Ratings. That represents nearly half of the company’s total managed loans. The percentage of borrowers behind on their loans climbed to 14.50% from 13.80% a year earlier for the loans the company collects payments on.