The deeper I dig into this mess, the more I understand the phrase ‘We are all subprime, now.’ Auto loans:
In the waning days of the housing-market bubble, lenders lowered their standards, and that made the downturn worse. There is growing evidence that standards also came down for auto loans, and rapidly rising default rates could be the next dilemma for the staggering financial sector.
The amount of auto loans that were past-due or written off as a loss moved sharply higher in the last part of 2007, according to analysts.
Two of the big reasons for the deterioration have been easy to spot. The economy has been slowing, leading to job losses and depressed wages. And the mortgage downturn has prompted banks to cut the availability of home-equity lines of credit, which borrowers have used to pay down car and credit-card loans.
It is becoming clear that several auto lenders let lending standards slip substantially in 2006-07. This increased the chance that loans were made to borrowers who couldn’t really afford them — even at the outset. There is also some evidence that credit-card companies made the same mistake.
“The problem of lax loan-underwriting standards was not just concentrated in the mortgage sector; it’s looking like it took place across the consumer-finance sector, from credit-card loans to auto loans to motorcycle loans,” says William Ryan, consumer-finance analyst at Portales Partners, a research firm.
We are just so fucked. I don’t know what else to say.