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I've seen this movie before, and I didn't like the ending
Topic Started: Jan 10 2016, 05:24 AM (180 Views)
George K
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Finally
Auto sales at an all time high.
Quote:
 
Seven years ago, auto sales hit a 27-year low,” the president said in his weekly address. “Last year, they hit an all-time high.”

Obama will visit the Detroit Auto Show later this month to further celebrate the industry’s turnaround.

The president said that Detroit was “on the brink of collapse” as he took office in 2009, creating a crisis in the nation.

“Some said it was too late to turn things around,” he said. “But I refused to turn my back on so many of the workers that I’d met. Instead, I placed my bet on American workers.”

Here's the dirty little truth:
Quote:
 
when it comes to auto loans, in particular, a rising volume of loans is going to borrowers with poor credit. The sum in that category has nearly reached the same level as in 2006, raising questions about the health of the nation’s auto-lending portfolio and drawing uncomfortable comparisons to the rise in subprime mortgages that helped fuel the housing collapse, financial crisis and recession.

The comptroller of the currency, Thomas Curry, said in a speech last month that some of the activity in auto loans “reminds me of what happened in mortgage-backed securities in the run-up to the crisis.”

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"Now look here, you Baltic gas passer... "
- Mik, 6/14/08


Nothing is as effective as homeopathy.

I'd rather listen to an hour of Abba than an hour of The Beatles.
- Klaus, 4/29/18
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jon-nyc
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Cheers
The comparison is overwrought. The linkage to the overall economy just isn't there. (I mean, to any similar extent)

It's worth remembering that subprime lending per se didn't harm the economy. The (deflating) housing bubble did. And while subprime lending certainly helped fuel that bubble, there's no comparable risk of a bubble in car prices. Nor would deflating car prices have the impact on household wealth, consumer spending, labor mobility, etc. that we saw in the collapse of the housing bubble.

Also those finance companies are pretty good at keeping loan-to-value ratios low enough to limit losses. In most cases they eliminate them altogether. And repo is so much more efficient that foreclosure.

The biggest risk here is in the personal finances of the borrowers themselves. The CFPB might be right to worry about this a little, but the rest of us can sleep soundly.
In my defense, I was left unsupervised.
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George K
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Finally
Good points, Jon. Any thoughts on the loosening of Fannie Mae mortgage qualifications?
A guide to GKSR: Click

"Now look here, you Baltic gas passer... "
- Mik, 6/14/08


Nothing is as effective as homeopathy.

I'd rather listen to an hour of Abba than an hour of The Beatles.
- Klaus, 4/29/18
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Red Rice
HOLY CARP!!!
Who Really Rescued GM?

(Malcolm Gladwell article)
Civilisation, I vaguely realized then - and subsequent observation has confirmed the view - could not progress that way. It must have a greater guiding principle to survive. To treat it as a carcase off which each man tears as much as he can for himself, is to stand convicted a brute, fit for nothing better than a jungle existence, which is a death-struggle, leading nowhither. I did not believe that was the human destiny, for Man individually was sane and reasonable, only collectively a fool.

I hope the gunner of that Hun two-seater shot him clean, bullet to heart, and that his plane, on fire, fell like a meteor through the sky he loved. Since he had to end, I hope he ended so. But, oh, the waste! The loss!

- Cecil Lewis
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Jolly
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Geaux Tigers!
Yeah, but what happens when these guys can't pay for all those cars and they get repoed?
The main obstacle to a stable and just world order is the United States.- George Soros
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jon-nyc
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Cheers
It screws up their finances and maybe the lenders lose a little bit of money. But maybe not.

In my defense, I was left unsupervised.
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jon-nyc
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Cheers
A couple of things to consider:

This market is small compared to mortgages. The graphs George posted are trying to hide that. Subprime auto is maybe $40B a year. The mortgage market is over 1T a year.

Car payments are higher up the payment hierarchy than underwater mortgages. The borrowers know that repo is easy. Thanks to 'kill switches', some of the cars won't start if they go delinquent. Foreclosure takes forever.

The last paragraph of George's article gives the delinquency rate of subprime auto loans as 3%. That's down from 5% in 2011.
In my defense, I was left unsupervised.
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Copper
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Shortstop
George K
Jan 10 2016, 05:24 AM
Quote:
 
I placed my bet on American workers.”

Success has many fathers.
The Confederate soldier was peculiar in that he was ever ready to fight, but never ready to submit to the routine duty and discipline of the camp or the march. The soldiers were determined to be soldiers after their own notions, and do their duty, for the love of it, as they thought best. Carlton McCarthy
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Jolly
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Geaux Tigers!
jon-nyc
Jan 10 2016, 07:37 AM
It screws up their finances and maybe the lenders lose a little bit of money. But maybe not.

Maybe...One of the reasons for the rise in new car sales is the price of used cars and the cost of financing them. People budget a monthly note, they don't budget a cash purchase.

It became cheaper, as in monthly note, to buy new vs. buying used. Now, if lenders are lending to peope with bad credit and a lot of those cars come back, what happens? Well, one thing that happens is that the price of used cars goes down. And when the price of late model used cars go down, and the used note is cheaper than the new note, guess what happens to new car sales?
The main obstacle to a stable and just world order is the United States.- George Soros
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jon-nyc
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Cheers
George K
Jan 10 2016, 05:58 AM
Good points, Jon. Any thoughts on the loosening of Fannie Mae mortgage qualifications?
I'm not that close to it anymore. We have a perennial issue of opposing policy goals. We want to increase home ownership rates, but we don't want banks to engage in risky lending behavior. We want poor people to have access to car loans, but we are uncomfortable with the rise of subprime lending in autos.

And we want the poor to have access to credit generally, and then complain when the resultant risk is priced in to their interest rate.

And just until the social justice weapon of mass destruction, 'disparate impact', wreaks it's full havoc on the lending sector...
In my defense, I was left unsupervised.
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