Auto loan delinquency rates rose to 2.40% — compared with 2.35% the year prior — according to data released last week in Experian’s third-quarter State of the Automotive Finance Market report. Rising delinquencies could create an environment that looks a lot like the subprime mortgage crisis, Joe Cioffi, partner at Davis & Gilbert LLP, told AFN.
“Delinquencies are rising, and you have folks who are saying, ‘Well, don’t worry about it, because it’s really just normalizing.’ But what I see, is there is always a lag effect,” Cioffi said, comparing the current situation to the 2007 credit crisis. “Here, possibly, we could see the same tail whipping around, where you have delinquencies rising [and credit quality declining], but more people coming in.”
Deep subprime lender Honor Finance filed its first securitization ever last month backed by $100 million of auto loans with an average Fico score of 534, Cioffi noted as an example of how smaller players are “going deep,” down the spectrum, while large banks tighten.
“I’m not one of those folks who thinks this is necessarily going to be the next financial crisis, but it could still be pretty big,” Cioffi said. “There’s no mistake that this could be a significant problem if willful blindness continues where the lenders and the banks keep saying, ‘No, not us, we’re different.’”
