5 ms·

Selfish plug here but this industry is our bread and butter (our company hosts the data rooms and powers the marketing for the vast majority of subprime auto ba

Selfish plug here but this industry is our bread and butter (our company hosts the data rooms and powers the marketing for the vast majority of subprime auto backed securitizations in the US). Below is a link to issuance volume going back to 2008. You'll see that big banks are not the leading originators in this market and at peak (2016) we're talking $26bn in loans (versus hundreds of billions in subprime mortgages). Additionally, unlike mortgages on second and third homes, people are far less likely to default on a car rather than a home because in suburban America, you need your car to keep your job, regardless of where you live. Finsight Subprime Auto issuance profile: https://finsight.com/sector/Auto/Subprime%20Loan https://finsight.com/sector/Auto/Subprime%20Loan

deleted 10y ago
[deleted]
wheelerwj 10y ago
i think the point you are trying to make is that auto loans are safer but you failed to express two massive considerations: first, and foremost, mortgages are secured against a physical piece of property that will almost always retain a significant portion of the original value. in the recession, homes might have lost 60-80% of their value, but they all bounced back reasonably over time. in contrast, a vehicle loses a huge portion of its value immediately and by the time a car is 20 years old, its not even worth repossessing. second, homes can't move. you have a much better chance of repossessing a house than you do of repoing a car. finally, just for fun. your claim that people are less likely to default on a car loan because they need to work is taken out of context at best, or possibly is just plain incorrect considering the prevelance of ride sharing tools and public transit. People only need to keep their cars for work.... if they have jobs.
- ryanmarsh 10y ago
  > mortgages are secured against a physical piece of property that will almost always retain a significant portion of the original value. REO is incredibly costly and moving a house off the books cannot happen quickly especially in a down market. Cars are better in that way. Most people will be upside down in their car loan but there's an international market for cars. It's pretty easy to liquidate a used car and capture some capital in the short term. Try that with a $450,000 McMansion.
  - TheSpiceIsLife 10y ago
    Don't they just auction the place with no reserve? That's what I though happened to repossed houses. I could be wrong here. Chances are someome will take out a new loan with one of the big banks to finance their new purchase. The bank gets to keep all the money already paid in by the original lender anyway.
  - wheelerwj 10y ago
    you don't have to liquidate a 450k mcmansion, you just have to wait.
- refurb 10y ago
  that will almost always retain a significant portion of the original value. Is that true? Home values dropped 50%+ in some areas during the housing crisis. And when you're talking about a several hundred dollar home, that adds up quickly. Cars have the disadvantage that they depreciate, but if you can repo them quickly enough, the losses can be contained. And as someone else mentioned, cars are mobile, so if you repo one in California, you can always move it to Washington if it sells faster.
  - TheSpiceIsLife 10y ago
    I'm guessing here, but considering how much value is lost just driving a car out of the show room, even a six month old repo'ed car is going to go for, what, maybe 50% it's original sale price at auction. Whoever reposses the cars isn't interested in sitting on them for weeks to wait for the right buyer at the right price.
    - acchow 10y ago
      Used cars retain a lot more value than they used to. According to Edmunds, it retains 49% after 4 years https://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html https://www.edmunds.com/car-buying/how-fast-does-my-new-car-...
      - brigade 10y ago
        That's trade-in value. Auction value is lower. Additionally, being repo'd is a hefty detractor to the auction price; plenty of dealerships categorically don't buy repo cars. Plenty of customers, too. Plus the repo fee coming out of the auction price...
- ams6110 10y ago
  Nobody will finance a 20 year old car (outside of specialty collector markets). Even 72, 84 months is insane. If you need to finance a car for that long to afford the payments, you need to buy a cheaper car.
  - eganist 10y ago
    http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-and-for-longer-on-their-auto-loans.html http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-... > Average monthly payment: $503 — the first time the average auto payment has gone over the $500 mark. > Average term for an auto loan: 68 months — this is the longest average term ever seen by Experian.
    - tracker1 10y ago
      My current car is financed at 60 months... First time I've ever gone above 48. Will definitely be shopping used next time around.
    - rhizome 10y ago
      Wow, this comes as great news for me. I felt terrible for years because I was paying 600/mo for a (special) car, that I paid off in exactly 5 years. I had a perfect storm of circumstances occur just as I was getting the loan, the banks no longer liked the risk, so it was financed by, like, the dealer's used car buddy a few cities over, and for a not-awesome rate. Long story short, all's well that ends well, still have the car, and I'm not as far off from the "average worst" as I thought.
      - cylinder 10y ago
        I don't understand how people spend so much on cars when their net worth is under $5 million. Do people not remember the economy can go in the toilet really fast? Why aren't people constantly scared and thus saving as much as possible and acquiring good assets? Even if the economy stays strong, your own career or profession can go bad or get disrupted real fast.
- brigade 10y ago
  Do you actually believe that even a quarter of people taking out subprime loans could afford to replace their car with Uber, assuming it's even available where they live? Second, yes homes can't move, but the legal process you need to go though to evict, repossess, and resell a house is long and expensive. With a car, a repo guy needs just 5 minutes in a parking lot and the car's off to auction next month. Between automatic license plate readers and GPS trackers (for the absolute bottom tier), nowadays they're quite likely to get their chance well before a delinquent mortgagee would be evicted.
Retric 10y ago
Sub prime Auto loans like subprime CC also have much higher interest rates so they can absorb far more defaults. Further, the loans are not nearly as long so if someone makes payments for 4 years much of the principle has already been recovered with 15% interest rates.
uep 10y ago
John Oliver had a segment on subprime lending back in August: https://www.youtube.com/watch?v=4U2eDJnwz_s https://www.youtube.com/watch?v=4U2eDJnwz_s According to the video, there was a 31.45% default rate in 2015.
- jgalt212 10y ago
  Yes, but even at that high default rate you can make the math work. 100-31.45 X 1.15 = 78.83 so if you can sell the $31.45 worth of repo'd cars for more than $21.17 (100-78.83), you have broken even. 21.17/31.45 is 67% recovery rate. high, but doable for sure. even more so when you consider loans with 31% default rate probably have loan rates much higher than 15%
jgalt212 10y ago
> people are far less likely to default on a car rather than a home because in suburban America, you need your car to keep your job, regardless of where you live Also, it's a lot harder to repossess a home (i.e. foreclose) than it is to repo a car. Although, some of these advance repo methods are coming under closer scrutiny. https://www.bloomberg.com/news/articles/2017-03-06/another-auto-lender-faces-regulatory-probe-into-kill-switches https://www.bloomberg.com/news/articles/2017-03-06/another-a...
koreyb 10y ago
Assume you were referencing subprime home mortgages. I could be wrong. People are more likely to default on a subprime auto loan. 31.45% vs 8.96% http://www.sgcaccounting.com/Resources/BHPHBenchmarks2015.pdf http://www.sgcaccounting.com/Resources/BHPHBenchmarks2015.pd... https://www.mba.org/2015-press-releases/may/mortgage-delinquencies-and-foreclosures-fall-in-first-quarter https://www.mba.org/2015-press-releases/may/mortgage-delinqu... Source: sell BHPH software, work with DriveTime.

deleted 10y ago

[deleted]

wheelerwj 10y ago

i think the point you are trying to make is that auto loans are safer but you failed to express two massive considerations: first, and foremost, mortgages are secured against a physical piece of property that will almost always retain a significant portion of the original value. in the recession, homes might have lost 60-80% of their value, but they all bounced back reasonably over time. in contrast, a vehicle loses a huge portion of its value immediately and by the time a car is 20 years old, its not even worth repossessing. second, homes can't move. you have a much better chance of repossessing a house than you do of repoing a car. finally, just for fun. your claim that people are less likely to default on a car loan because they need to work is taken out of context at best, or possibly is just plain incorrect considering the prevelance of ride sharing tools and public transit. People only need to keep their cars for work.... if they have jobs.

ryanmarsh 10y ago
> mortgages are secured against a physical piece of property that will almost always retain a significant portion of the original value. REO is incredibly costly and moving a house off the books cannot happen quickly especially in a down market. Cars are better in that way. Most people will be upside down in their car loan but there's an international market for cars. It's pretty easy to liquidate a used car and capture some capital in the short term. Try that with a $450,000 McMansion.
- TheSpiceIsLife 10y ago
  Don't they just auction the place with no reserve? That's what I though happened to repossed houses. I could be wrong here. Chances are someome will take out a new loan with one of the big banks to finance their new purchase. The bank gets to keep all the money already paid in by the original lender anyway.
- wheelerwj 10y ago
  you don't have to liquidate a 450k mcmansion, you just have to wait.
refurb 10y ago
that will almost always retain a significant portion of the original value. Is that true? Home values dropped 50%+ in some areas during the housing crisis. And when you're talking about a several hundred dollar home, that adds up quickly. Cars have the disadvantage that they depreciate, but if you can repo them quickly enough, the losses can be contained. And as someone else mentioned, cars are mobile, so if you repo one in California, you can always move it to Washington if it sells faster.
- TheSpiceIsLife 10y ago
  I'm guessing here, but considering how much value is lost just driving a car out of the show room, even a six month old repo'ed car is going to go for, what, maybe 50% it's original sale price at auction. Whoever reposses the cars isn't interested in sitting on them for weeks to wait for the right buyer at the right price.
  - acchow 10y ago
    Used cars retain a lot more value than they used to. According to Edmunds, it retains 49% after 4 years https://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html https://www.edmunds.com/car-buying/how-fast-does-my-new-car-...
    - brigade 10y ago
      That's trade-in value. Auction value is lower. Additionally, being repo'd is a hefty detractor to the auction price; plenty of dealerships categorically don't buy repo cars. Plenty of customers, too. Plus the repo fee coming out of the auction price...
ams6110 10y ago
Nobody will finance a 20 year old car (outside of specialty collector markets). Even 72, 84 months is insane. If you need to finance a car for that long to afford the payments, you need to buy a cheaper car.
- eganist 10y ago
  http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-and-for-longer-on-their-auto-loans.html http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-... > Average monthly payment: $503 — the first time the average auto payment has gone over the $500 mark. > Average term for an auto loan: 68 months — this is the longest average term ever seen by Experian.
  - tracker1 10y ago
    My current car is financed at 60 months... First time I've ever gone above 48. Will definitely be shopping used next time around.
  - rhizome 10y ago
    Wow, this comes as great news for me. I felt terrible for years because I was paying 600/mo for a (special) car, that I paid off in exactly 5 years. I had a perfect storm of circumstances occur just as I was getting the loan, the banks no longer liked the risk, so it was financed by, like, the dealer's used car buddy a few cities over, and for a not-awesome rate. Long story short, all's well that ends well, still have the car, and I'm not as far off from the "average worst" as I thought.
    - cylinder 10y ago
      I don't understand how people spend so much on cars when their net worth is under $5 million. Do people not remember the economy can go in the toilet really fast? Why aren't people constantly scared and thus saving as much as possible and acquiring good assets? Even if the economy stays strong, your own career or profession can go bad or get disrupted real fast.
brigade 10y ago
Do you actually believe that even a quarter of people taking out subprime loans could afford to replace their car with Uber, assuming it's even available where they live? Second, yes homes can't move, but the legal process you need to go though to evict, repossess, and resell a house is long and expensive. With a car, a repo guy needs just 5 minutes in a parking lot and the car's off to auction next month. Between automatic license plate readers and GPS trackers (for the absolute bottom tier), nowadays they're quite likely to get their chance well before a delinquent mortgagee would be evicted.

Retric 10y ago

Sub prime Auto loans like subprime CC also have much higher interest rates so they can absorb far more defaults. Further, the loans are not nearly as long so if someone makes payments for 4 years much of the principle has already been recovered with 15% interest rates.

uep 10y ago

John Oliver had a segment on subprime lending back in August: https://www.youtube.com/watch?v=4U2eDJnwz_s https://www.youtube.com/watch?v=4U2eDJnwz_s According to the video, there was a 31.45% default rate in 2015.

jgalt212 10y ago
Yes, but even at that high default rate you can make the math work. 100-31.45 X 1.15 = 78.83 so if you can sell the $31.45 worth of repo'd cars for more than $21.17 (100-78.83), you have broken even. 21.17/31.45 is 67% recovery rate. high, but doable for sure. even more so when you consider loans with 31% default rate probably have loan rates much higher than 15%

jgalt212 10y ago

> people are far less likely to default on a car rather than a home because in suburban America, you need your car to keep your job, regardless of where you live Also, it's a lot harder to repossess a home (i.e. foreclose) than it is to repo a car. Although, some of these advance repo methods are coming under closer scrutiny. https://www.bloomberg.com/news/articles/2017-03-06/another-auto-lender-faces-regulatory-probe-into-kill-switches https://www.bloomberg.com/news/articles/2017-03-06/another-a...

koreyb 10y ago

Assume you were referencing subprime home mortgages. I could be wrong. People are more likely to default on a subprime auto loan. 31.45% vs 8.96% http://www.sgcaccounting.com/Resources/BHPHBenchmarks2015.pdf http://www.sgcaccounting.com/Resources/BHPHBenchmarks2015.pd... https://www.mba.org/2015-press-releases/may/mortgage-delinquencies-and-foreclosures-fall-in-first-quarter https://www.mba.org/2015-press-releases/may/mortgage-delinqu... Source: sell BHPH software, work with DriveTime.