Borrowers in the U.S. are defaulting on subprime auto loans at a higher rate than during the financial crisis in 2008.
Data from Fitch Ratings shows that the delinquency rate for subprime auto loans more than 60 days past due reached the highest since 1996 at 5.8 percent.
The default rate during the 2008 financial crisis was around 5 percent.
According to Bloomberg, lenders are now taking a step back on financing to applicants with poor credit histories, as well as requiring higher standards for loans that they bundle and sell to investors.
The latest data from Equifax found that the number of auto loans and leases extended to subprime borrowers fell by almost 10 percent from a year earlier in January, while auto-lease origination to subprime customers decreased by 13.5 percent.
Experts note, however, that the volume of bond sales backed by these loans will likely stay the same because banks and credit unions don’t turn most of their loans into securities.
“ABS is a fraction of the total auto credit market, which is mainly funded on balance sheets,” Wells Fargo analyst John McElravey said in an interview. “If the pullback from subprime is more from the balance-sheet lenders, banks, then maybe securitization keeps moving along.”
With that in mind, subprime-auto asset-backed security sales are at about $9.5 billion, on track with the $9.6 billion from a year ago, according to data from Bloomberg.
In addition, new transactions from Santander, GM Financial, Flagship, and Credit Acceptance are expected to be revealed this week, leading volume to possibly exceed last year’s total of about $25 billion.
“Neither banks nor credit unions have done ‘deep subprime’ lending,” Gunnar Blix, deputy chief economist at Equifax, said in a recent interview. “That’s mainly done by smaller dealer-finance and independent finance companies” who rely almost solely on ABS for funding.
In fact, only about 10 percent of $437 billion of outstanding subprime auto loans have been securitized into ABS, according to Wells Fargo.