How Scary Are Subprime Auto Loans?
Unlike subprime mortgages during the financial crisis, they don’t pose a risk to the system.
The asset class isn't big enough for a catastrophe.
Photographer: Patrick T. Fallon/Bloomberg
One of the lasting legacies of the financial crisis is the market’s tendency to take any sign of bad news and frame it in the context of 2008. Collateralized loan obligations, for instance, have been deemed scary because of similarities to the collateralized debt obligations that were riddled with bad mortgages.
Now, auto loans are under the microscope. A report last week from the Federal Reserve Bank of New York showed that as of the end of 2018, more Americans than ever — in excess of 7 million — were at least three months behind on their car payments. On a percentage basis, the delinquency rate is the highest since 2012, even though lending has shifted toward more creditworthy borrowers. The share considered “subprime” who are behind on their payments is the highest since mid-2010.