Wall Street Bet Big on Used-Car Loans for Years. Now a Crisis May Be Looming.

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by byard_duncan

via propublica:

“Wall Street could always bank on used cars. In fact, for years, investors bought bonds backed by auto loans because they reliably produced handsome returns, even amid rocky markets and downturns in the economy.

But now, for the first time in decades, that winning streak appears to be coming to an end, with a half dozen prominent used-auto lenders facing either an avalanche of failed loans — or growing regulatory scrutiny. The Consumer Financial Protection Bureau is currently suing two of those lenders over potentially predatory practices.

Together, experts say, the woes could signal a significant blow to a key pillar of the U.S. economy.

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The first warning sign came in late February, when a company called American Car Center, which offered loans to customers with troubled credit histories, abruptly closed its 40 dealerships across the South and filed for bankruptcy protection. Then in April, another lender called U.S. Auto Sales also collapsed, shuttering dozens of dealerships in several states.

Before long, S&P Global Ratings put American Car Center and two other major subprime auto lenders — Exeter Finance and United Auto Credit — on watch for potential ratings downgrades.

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Driving much of the concern are delinquencies. Today, the number of subprime borrowers who are behind on their auto-loan payments by 60 days or more is the highest it’s been since at least 2017, according to reports from multiple ratings agencies. Defaults are climbing too.”