Subprime Auto Goes Full-Retard: Lender Sells $154 Million ABS Deal (no-credit buyers)

[der_kommissar]

Yep.

I'm surprised. For many that was the "awakening" that moral hazard had become the status quo and that it would be preserved at all costs.

ZIRP was sold as an "emergency measure", but conveniently it has become a 7 year albatross with even the most timid "suggestion" of a rate hike turning the status quo into panic.

 

[fhl]

I'm surprised. For many that was the "awakening" that moral hazard had become the status quo and that it would be preserved at all costs.

ZIRP was sold as an "emergency measure", but conveniently it has become a 7 year albatross with even the most timid "suggestion" of a rate hike turning the status quo into panic.

These bonds just don't look like repo-able items to me. What can I say?

 

[ktm]

??
Who are the lenders that lend on these schlock bonds? Either you are making this up, or the business practices of the industry have gone so far down the tubes that we should get all the cash and gold we can and hide it somewhere very safe.

There's a massive market out there for the world of bad credit. Think about all the entitlement types living off the gov't dole, plus the criminals that can't get regular work...the mentally unstable that can't hold jobs...substance abusers...the list goes on.

At 30% interest on a 20K car loan for an 8 year term (remember they can't get anything anywhere else), that's 12K in interest if you can keep them making payments for just 2 years - and they still owe 18K in principal. With today's technology, you often wind up repo'ing the car anyway. Even with huge default rates...this is big money for those that can stomach it.

A few decades ago, I used to repo cars for these guys.

 

[fhl]

There's a massive market out there for the world of bad credit. Think about all the entitlement types living off the gov't dole, plus the criminals that can't get regular work...the mentally unstable that can't hold jobs...substance abusers...the list goes on.

At 30% interest on a 20K car loan for an 8 year term (remember they can't get anything anywhere else), that's 12K in interest if you can keep them making payments for just 2 years - and they still owe 18K in principal. With today's technology, you often wind up repo'ing the car anyway. Even with huge default rates...this is big money for those that can stomach it.

A few decades ago, I used to repo cars for these guys.

We're talking here about bond mkt repos. Not car repos.
And I still doubt very much that any brokerage firm is repo-ing the bonds described in this deal.

 

[ktm]

We're talking here about bond mkt repos. Not car repos.
And I still doubt very much that any brokerage firm is repo-ing the bonds described in this deal.

Right. The bonds are complete crap...I wouldn't touch those with your money.

 

[fhl]

Right. The bonds are complete crap...I wouldn't touch those with your money.

Yep, there was just a miscommunication here. I thought we were talking about bond repos and you thought we were talking about car repos. I'm not all that surprised that they were doing this kind of lending in the car business, but I was really surprised if inv banks were lending money to customers using these bonds as collateral.

 

[ktm]

I think that was a huge part of the runup leading to 2007. Technology allowed securitization and mixing of debt instruments into products that became more complicated. The selling organizations often wanted to juice the returns, so they added some risk with lower grade paper. The buyers found out what they had and wanted to strip out only the riskiest stuff - so they tried to sell those parts. After it had been sold seven times and repackaged five times, no one had any idea who owned it when the originator defaulted...especially when the third and fourth company that owned them were out of business.

I have read that there has been some scaling back in this regard, but have things really changed all that much? Has this stuff completely stopped? Once securitization became common, it seemed that we would always run the cycles of conservative prudence with certain players increasing risk over the years until we pop...then it starts over.

All of this C and D paper has to go somewhere. With the legal ability to double your return on invested capital, it seems like the folks holding it would lend against it if they could. It's not THEIR money.