Subprime Auto-Loan Delinquencies Surge to NY Fed’s Attention

Subprime Auto-Loan Delinquencies Surge to NY Fed’s Attention

Six million Americans are 90-plus days delinquent.

The increasingly turbulent sector of subprime auto loans bubbled to the attention of the Federal Reserve Bank of New York. In its Liberty Street Economics, it worries about the “notable deterioration in the performance of subprime auto loans” – Fed speak for the momentum with which these loans are going to heck.

About six million people with subprime credit scores (below 620) are now at least 90 days past due on their payments for their car or truck.

The New York Fed worries about the lenders that specialize in these loans, and it worries about the “large number of households” whose vehicles are at risk of repossession: “The increased level of distress associated with subprime loan delinquencies is of significant concern, and likely to have ongoing consequences for affected households,” it says.

If the vehicles are repossessed, people might lose their ability to go to work, go to the grocery store, and do the normal things in life that drive the economy forward. Six million people are in that position.

Auto loan balances jumped by a breath-taking $32 billion in the third quarter, to $1.135 trillion, according to the New York Fed’s current Household Debt and Credit report today. According to the Board of Governors of the Federal Reserve, which released its own set of numbers a little while ago, auto loan balances jumped by $30 billion in Q3, to $1.1 trillion (chart below). Both agree: It was the biggest jump in auto loan originations in US history for any quarter and year-to-date.

All of it on flat new vehicle sales so far this year:

us-auto-loans2016-q3

Of these $1.135 trillion in outstanding balances, banks and credit unions originated 49% ($556 billion). Auto finance companies originated 51% ($579 billion). These auto finance companies, such as Santander Consumer USA, are focused on subprime.

  • Subprime auto loans make up 24% (or $272 billion) of total auto loans.
  • Banks and credit unions originated only 25%, or $68 billion, of these subprime loans.
  • Auto finance companies originated 75%, or $204 billion, of these subprime loans.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.