“Credit enhancement could be viewed as a deodorizer for poor quality loans,” he said in an interview. “One method of enhancement is to put excess loans in a deal, but if you have 100 bad loans, and put in 50 more bad loans, you’re not any better off. If there is a shock to the economy that affects consumers generally, then all of the loans could be affected.”
At the same time, American car buyers don’t seem to be improving their credit profiles even as the economy picks up steam and unemployment falls to multiyear lows. Subprime auto bonds have surpassed the pre-financial crisis peak as a share of the overall auto-ABS market. Last year, the category represented about $25 billion out of total issuance of $110 billion, according to Bloomberg data.
In something of a twist, adding the safeguards has led to rating upgrades for some of the riskiest ABS bundles. That’s because as the cushions get triggered when losses on the junk-rated tranches mount, the issuer is forced to compensate and that increases the overall creditworthiness of the package. And that attracts fresh demand.
There's a chart showing subprime car loans increasing since the 1990's, only had a temporary dip from 2008 to 2011, and increased past the 2007's peak.
Submitted March 14, 2018 at 12:53PM by COMPUTER1313 http://ift.tt/2FV5Lfu
