Growing numbers of small subprime auto lenders are closing or shutting down after loan losses and slim margins spur banks and private equity owners to cut off funding.
Summit Financial Corp., a Plantation, Florida-based subprime car finance company, filed for bankruptcy late last month after lenders including Bank of America Corp. said it had misreported losses from soured loans. And a creditor to Spring Tree Lending, an Atlanta-based subprime auto lender, filed to force the company into bankruptcy last week, after a separate group of investors accused the company of fraud. Private equity-backed Pelican Auto Finance, which specialized in “deep subprime” borrowers, finished winding down last month after seeing its profit margins shrink.
This time around, the financial system’s losses are expected to be much more manageable, because auto lending is a smaller business relative to mortgages, and Wall Street hasn’t packaged as many of the loans into complicated securities and derivatives. As of the end of September, there were about $280 billion of subprime auto loans outstanding, according to the Federal Reserve Bank of New York, compared with around $1.3 trillion in subprime mortgage debt at the start of 2007. There isn’t a standardized definition of subprime borrowers, though it generally encompasses borrowers with FICO credit scores below 600 to 640 on an 850 point scale.
On a side note: https://www.bloomberg.com/news/articles/2018-04-04/the-0-auto-loan-era-is-fading-into-america-s-rear-view-mirror
Toyota has already been reducing its zero-percent financing offers. They made up 13 percent of the Japanese carmaker’s U.S. sales in February, the latest month for which data is available, down from 17 percent one year prior, Edmunds estimates.
“It’s hard to support zero financing in this type of environment,” Henio Arcangeli Jr., Honda Motor Co.’s top U.S. sales executive, said last week in an interview at Bloomberg News headquarters in New York. “It’s very expensive.”
Submitted April 06, 2018 at 03:16PM by COMPUTER1313 https://ift.tt/2GFBJJG
