Charges that subprime auto financing is a bubble ready to burst (and cause widespread economic damage) are common these days. What’s not so common is the data to support those charges, according to a new economic trends commentary from Equifax released yesterday.
Equifax examined data gathered from the credit reports of 210 million consumers in its database and evaluated whether certain traditional characteristics of a bubble are evident in subprime auto lending. The data Equifax evaluated shows subprime lending has been fairly stable since 2012.
Originations have been shifting toward the higher end of the subprime spectrum, and recent subprime vintages have been performing well, according to the report. That runs contrary to arguments that the sector is repeating the mistakes made in the run-up to the mortgage crisis.
The report spells out three critical components to the bubble formation in subprime mortgages: rising asset prices fueled speculation in residential real estate; new home construction was at all-time high for a sustained period and exceeded population growth; and finally, the share of mortgages originated to subprime credit borrowers was rising at a time when home purchases were already at record levels.
In the mortgage boom/bubble, well qualified borrowers did not grow in tandem with subprime borrowers. Instead the credit bubble got fueled by a flurry of inappropriate lending.
This, Equifax says, is not the case with auto.