Delinquencies on subprime auto debt packaged into securities reached a high not seen since October 1996, as late payments continued to worsen in February, according to Fitch Ratings. – Bloomberg News
The Fed and the Obama Government inflated a massive bubble in automobile sales (among all the other bubbles). Over 30% of all auto loans over the past few years have been of the subprime variety. Not just “subprime” per se, but absolute nuclear waste. Low credit score borrowers have been able to buy used cars with loan terms well beyond 5 years AND loan-to-value amounts far greater than 100% of the assessed NADA used car value.
It’s an absolute disaster waiting to happen. Fitch of course puts a positive spin on the ticking time bomb by stating that it expects the payment rate to improve in the coming months as tax refunds kick in. Only there’s a problem with this assertion – where are the tax refunds? Not only that, many taxpayers have been taking advantage of the available of tax refund anticipation loans: Tax Refund Advances Are Back. Sorry Fitch, a lot of that tax refund money is already spent. And guess what? Your beloved sub-prime auto CLO’s are now subordinated to the Tax Anticipation Debt.
Yesterday’s retail sales report from the Government reflects an economy in which the consumer is quickly losing its ability to spend money:
Constraining retail sales activity, the consumer remains in an extreme liquidity bind…Without sustained growth in real income, and without the ability and/or willingness to take on meaningful new debt in order to make up for the income shortfall, the U.S. consumer has been unable to sustain positive growth in domestic personal consumptiondependent on personal spending. – John Williams, Shadowstats.com
The developing crash in subprime auto debt is just the tip of the iceberg and it will fuel a negative feedback loop that will include a collapse in general consumption spending other than for necessities and an eventual implosion in mortgages. Just like the auto market, the mortgage market – aided and abetted by the Fed and the Government – has enable a massive reflation of subprime mortgages disguised as Fannie Mae, Freddie Mac and FHA low down payment, low credit score Government-backed home loans.
Perhaps this is why the inventory of both existing home listings and new homes is beginning to pile up like, well, a slow motion car wreck…