Surge in Auto-Loan Delinquencies Is Latest Trouble for the Economy

[donsu]

http://online.wsj.com/article/SB119690536188815285.html?mod=hps_us_whats_news


-snip-

Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association.

-snip-

"The numbers will get worse for auto loans," says Dan Castro of GSC Group, a New York firm that runs debt-related investment funds. "We're starting to see signs of rising losses, and delinquencies are creeping up."

Few in the auto-loan industry see the strain as the kind of disaster-in-the-making that home mortgages have become. Still, there is a connection between the two categories, since the squeeze on some home borrowers may make it harder to carry car loans. The trouble signs in auto loans suggest that the credit woes could be spreading to the broader economy, a development that has been worrying investors and policy makers in Washington.

Other corners of the credit market are also sending troublesome signals. Shares of First Marblehead Corp., which packages student loans into securities, dropped to a two-year low yesterday after an analyst cut his rating on the stock and Moody's Investors Service threatened to downgrade some of its securities, also because of delinquency concerns.

-snip-

Many auto loans undergo the same Wall Street financial engineering as the mortgage loans that stand at the center of the credit crisis, making this a potential issue for investors. Auto loans often are bundled together into securities, sliced and diced into pieces with varying levels of risk and return, and sold to investors around the world.

-snip-

There are reasons to believe the problems in auto loans won't reach crisis levels. Auto lenders and credit counselors say many consumers see their cars as a necessity and would sooner hand back the keys to a home and look for a rental than default on a car loan.

(could this possibly be true!?)

-snip-
-------------------------------


I don't think lenders of any kind should be able to sell the loan.

cars and student loans . . . student loans should NOT be in this picture. something is very wrong.

[flashl]

1. Schools told to explain relationships with lenders

Education DU Post

Dozens of colleges, universities and trade schools have been ordered to turn over documents to government officials explaining why a single lender at each school handles the majority of federally backed student loans.

The request, sent to 55 schools, comes amid concerns that some colleges might be steering students improperly to lenders who reward schools for the extra business. The schools have until Friday to give federal education officials documents dating to July 1, 2005, that include correspondence with lenders, loan policies and written descriptions of how preferred lenders were chosen.

The targeted schools include large public universities, private liberal arts colleges and career schools where students received at least $10 million in federal loans for tuition.

---

Schools profit from steering students to loans, credit cards, computers, life insurance, etc.

[donsu]

2. thanks for this info - I didn't know there was a Univ. loan-gate

nt

[madrchsod]

3. it`s a very nasty business

the loan sharks are wearing wall street suits. it is the next big scam.

[mrcheerful]

4. Seems people never learned from the mistakes of the grand parents that lived before 1929

they too went on a buying scam and put all of their trust in banks or Wall street. After 1929 they woke up and found out they lost everything, including the family farm. My grand father could squeeze every last penny he had. I seen him scrape a tin can so clean I swore he was washing the tin cans after geeting the food out, but nope, with a spoon he got everything the can had in it. Seems history is once again repeated by those who never learn from the past/

[Imagevision]

5. Well, looks like used car prices may begin to fall after having an over abundance of used car stock

[flashl]

6. We'll have to see ...

"Valued" investors are looking at auto retailing, others are mulling over auto parts.

[Greyhound]

7. Yes indeed, the market that was created by allowing this practice of "bundling" loans,

and selling them, to investors, allowed the lenders to knowingly make bad loans without bearing any risk. The inevitable result is that the only qualification for these loans is a pulse and the ability to sign an incomprehensible document. This in turn, has allowed the rampant inflation of tuition and obscene over valuations.

[lovuian]

8. its a Depression coming

and these corrupt parties are going to see anger pouring out at them

[derby378]

9. The only winners in this scenario? Repo men

Paging Emilio Estevez and Harry Dean Stanton...

[dysfunctional press]

10. i've always paid cash for cars.

i've never seen the sense in borrowing money to buy something that depreciates so quickly.

[Greyhound]

11. You are so right. I've had to help a couple od exes buy new cars

because that was the only way to get out from under the usurious loans they had taken to buy their previous cars. One owed, after making payments for three years, over $10,000 on a mustang worth only $3,500. Car dealers have owned their state legislatures for so long that they can literally do anything they want with the blessing of "the law".

The whole industry is built on lies, the manufacturers lie to the dealers and the legislators, the dealers lie to the managers, the managers lie to the salespeople, and the salespeople lie to the customers, who lie to everybody. Is it any wonder that most states have laws that make car loans different from every other?

I, like you, just buy used cars for cash. Let the sheep take the depreciation hit.

[dysfunctional press]

12. i had to change my wife's mindset when we got married-

her father, who can afford to buy new cars for cash(a caddy every other year for him, and a buick every year for the wife), had instilled in her the idea that with a used car "you're only buying someone else's problems". it took a little time, but i've broken her of that mindset entirely. her current car is a used new beetle, and she'll probably replace it with the same when it dies.

when i was in my early 20's, all my friends had new cars with big payments, while i'd buy used cars- a lot of times for less than one or two month's payment on one of their cars- fix it up, and drive it till it dropped.

i once bought a '72 olds 98 with only 18,000 miles on it for $425- it had been on blocks in the owner's garage for 10 years. it belonged to an older widow, who drove it only once after her husband died, and smashed the right front quarter panel. she decided it was too big a car for her, and was too scared to drive it after that and except for that, it was in mint shape, and loaded with power everything. after i bought it(her son was a friend of a friend, but didn't want the car- she had been saving it for him), i went to a junkyard, and for $100 found a front end from a '73 olds 88 that had the same bolt pattern as my '72 98. my car was a deep metallic blue, and the front end of the 88 was non-metallic yellow- kinda like a taxi. i never painted it, but i put in a stereo that cost more than the car and the front end combined, so once i was 'done', i had a two-tone, 72/73 olds 88/98 with FANTASTIC sound. i loved that car. it was HUGH- a true land yacht...with the power bench seat up front, it felt like you were sitting on the couch driving around in your living room instead of a car.

[Greyhound]

13. LOL! I know just what you mean...

mine was a Plymouth Fury III, 73 or 74 (I really can't remember which!?!), So big it would barely fit on a side street. Had a (once again working from memory) 360 big block that might get 12 mpg. I hated it, but it was really cheap ($300 IIRC) and I could haul a dozen close friends in it. I think it may have actually been bigger than my living room.
:evilgrin:

[Liberal_in_LA]

14. agreed. Nothing wrong with buying a solid used car.