There are “signs of distress for loans issued to subprime borrowers” in the auto space, according to an analysis of the latest Quarterly Report on Household Debt and Credit conducted by the New York Fed’s Center for Microeconomic Data.
There was “notable deterioration in the performance of subprime auto loans” due to subprime delinquency rates climbing above 2% for the first time since the aftermath of the great recession, wrote authors of Liberty Street Economics, an online blog run by employees of the New York Fed that does not necessarily represent the views of the organization itself.
Although the overall delinquency rate only increased slightly, and prime auto loans remain relatively stable, it’s subprime that has ballooned to the point where roughly 6 million individuals are at least 90 days late on their auto loan payments, the blog stated.
Banks and credit unions are actually lowering their delinquency rates, but it’s the auto finance companies that are originating a disproportionate amount of subprime loans wrote the authors: Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw.
“Specifically, a worsening performance among auto loans issued by auto finance companies is masked by improvements in the delinquency rates of auto loans issued by banks and credit unions,” the blog reads. “The ninety-plus day delinquency rate for auto finance company loans worsened by a full percentage point over the past four quarters, while delinquency rates for bank and credit union auto loans have improved slightly.”
Overall, originations grew during the three quarters. The median credit score for auto loans ticked up to 699 and lenders originated $150 billion in auto loans, which matches the peak level of originations from a year ago, the report states.
Despite that strength in the overall category and the prime segment, the analysis provides a lot of evidence of a strain in subprime.
“Even though the balances of subprime loans are somewhat smaller on average, the increased level of distress associated with subprime loan delinquencies is of significant concern, and likely to have ongoing consequences for affected households.”
