Battling Misperceptions
Auto financiers have tried since the credit crisis to differentiate subprime auto loans from subprime mortgages. Yet it appears our industry still has a ways to go.
An article in today’s Huffington Post takes a stab at the auto industry ― specifically, the buy-here, pay-here sector. Here’s how it starts:
“Auto loan financiers are beginning to adopt a practice from the housing industry that many say played a significant role in the meltdown of the housing market.”
“Buy Here Pay Here dealerships — which issue loans to borrowers that often can’t qualify for a traditional car loan and in many cases require the borrower to return to their lot to pay them off — are packaging the loans and selling them to investors, the Los Angeles Times reports. The practice of packaging shoddy auto loans into securities and selling them to investors — $15 billion worth in the last two years — is reminiscent of a craze popular among mortgage lenders in the lead up to the housing and financial crisis.”
The article goes on to cite statistics about how subprime borrowing is on the rise and how mortgage lenders face scrutiny for their role in the credit crisis.
What the article fails to mention is that since 2007, auto loans have outperformed first and second mortgages, according to a white paper released this spring. Not only that, but rating agencies have implemented more stringent criteria for assessing the likelihood that securitization investors would be repaid. Lenders, too, have cracked down on verifications.
Looks like the battle continues for industry understanding.
