Posts Tagged ‘subprime’

Storm Damage: Auto Lenders Brace for Losses

Posted on November 08, 2017 by Laura Lam

U.S. auto lenders are starting to tally the financial damage from late-summer hurricanes that destroyed an estimated 500,000 to one million vehicles.  So far, the impact on lenders has been relatively small, since many of them are offering forbearance to car owners who are struggling to rebuild their lives. Moreover, the biggest U.S. auto lenders have less than 10% market share, so hurricane-related losses will be spread widely across the sector, hitting credit unions and the financing arms of automakers in addition to banks. Still, the industry’s eventual losses seem likely to run into the hundreds of millions of dollars…

Banks Prepare for Credit Card Defaults

Posted on October 20, 2017 by Laura Lam

Credit card delinquencies increased for three consecutive months, adding to signs that consumers in the U.S. are having a tough time paying their debt.  According to recent reports, credit card data from JPMorgan, Discover Financial Services and Bank of America show that the number of delinquencies is on the rise. The reason for the uptick in the number of people who can’t pay their credit card bills is due to lenders going after consumers with less-than-stellar credit ratings. Although this practice is intended to fuel growth in a low-interest rate environment, the lower credit quality is coming back to bite…

Credit Card Delinquencies on the Rise

Posted on October 18, 2017 by Laura Lam

Credit card delinquency rose for the third straight month in September, data from JPMorgan Chase & Co. and card issuer Discover Financial Services suggested.  The data add to signs that U.S. consumers are struggling amid rising household debt, after bank results last week pointed to an increase in provisions for future losses. September delinquencies for JPMorgan rose 1.22%, while those at Discover Financial were up 1.64% from August. Those at Bank of America also rose 1.56% — the second rise in three months.  Credit quality at several banks appears to be deteriorating as lenders target consumers with worse credit ratings to…

Banks Cut Back on Risky Lending

Posted on August 24, 2017 by Laura Lam

For the first time since 2012, lenders are making fewer subprime loans, according to a new report from TransUnion.  Subprime loans are those made to consumers with lower credit scores and usually carry less-favorable terms than prime loans. In most cases they carry higher interest rates and may have other disadvantages. The TransUnion report found 4.63 million consumers received a subprime auto loan or lease, personal loan, or credit card in the first quarter of this year. That compares to 4.89 million in the first quarter of 2016. “Across product lines, we saw a decline in subprime originations at the beginning…

Subprime Auto Defaults are Soaring

Posted on August 02, 2017 by Laura Lam

It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud.  Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017.  A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide.  In July, 90-day auto loan delinquency rates eclipsed 3.8%, their highest levels since the financial crisis. Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis. But since the Great…

Subprime Student Loans Resemble Pre-Crisis Mortgage Loans

Posted on April 28, 2017 by Laura Lam

Millions of U.S. parents have taken out loans from the government to help their children pay for college … now a crushing bill is coming due.  Hundreds of thousands have tumbled into delinquency and default. In the process, many have delayed retirement, put off health expenses and lost portions of Social Security checks and tax refunds to their lender, the federal government. Student loans made through parents come from an Education Department program called Parent Plus, which has loans outstanding to more than 3 million Americans. These loan applications ask almost nothing about its borrowers’ incomes, existing debts, savings, credit…

Consumer Defaults Predicted to Rise in 2017

Posted on April 24, 2017 by Laura Lam

About 17% of all U.S. consumers are likely to default on a loan payment over the next year, according to a recent report from UBS. More interesting, perhaps, is who these defaulters are.  The UBS Evidence Lab reports that the group’s profile is “middle and upper income, younger, male, urban, and concentrated in the coastal regions.” The UBS researchers also found evidence that defaults on auto loans are likely to spread to more non-prime defaults on credit cards and personal loans. About 16% of all auto loans outstanding are subprime, amounting to $179 billion out of total auto loans of…

Banks Rethink Credit Scores as Changes Take Effect

Posted on April 12, 2017 by Laura Lam

Come July, TransUnion, Experian and Equifax will no longer include information about tax liens and civil judgments on a consumer’s record if the data doesn’t include the person’s name, address, Social Security number and date of birth. Many liens and most judgments don’t include all that data, in part because Social Security numbers are often redacted for security reasons. Some consumers could see their credit scores rise with the removal of such black marks. Whether this change is a good thing depends on whom you ask.  Some observers note that tax lien and civil judgment information is sometimes attached to…

Auto Loan Defaults Not Likely to Cause Next Bubble

Posted on April 10, 2017 by Laura Lam

An increase in the delinquency of risky auto loans probably won’t send the U.S. economy into the doldrums the way the mortgage loan crisis did in 2008-09, but it will likely pinch car sales.  Borrowers are falling behind on most subprime car loans, but deep subprime consumers – those with credit scores below 550 – have deteriorated fastest, according to a report by Morgan Stanley. Just like mortgages, many of those loans have been packaged into bonds, “securitized” in Wall Street parlance, and sold across the world to investors searching for yields in the wake of the financial crisis. Car…

Are Automakers Creating the Next Financial Crisis?

Posted on March 06, 2017 by Laura Lam

The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion. The combination of new car smell and new credit woes stretches from Subarus in Maine to Teslas in San Francisco.  It’s an alarming number, big enough to incite talk of a bubble. On average, every licensed driver in the U.S, owes about $6,100 in car payments. But the market for cars is a lot different than that for houses. Vehicles are a more fluid asset…