Not to sound the alarm bells again but a new sign pointing to the subprime auto loan trouble was determined by a recent Wells Fargo study. Crunching the numbers and analyzing the trends, it is found that fewer subprime borrowers are paying off their auto loans early. This could indicate financial difficulties which could get worse for the market sooner than later.
Prepayments are indications of financial health. When fewer borrowers give out extra payments, especially in an already alarmed market, it’s hard not to let out a gasp. This finding, according to the analysts, may be a sign that borrowers are having a harder time paying for their loans now and they might join the already ballooning chunk of borrowers who defaulted on their loans.
According to the report, fewer extra payments were given into loans bundled into bonds in 2015 and 2016 than in 2013 and 2014.
About $7.1 billion worth of subprime auto loan-backed securities were issued in the first quarter of 2017, an increase from a total of $5.9 billion in the same period a year ago (source: Bloomberg files). The growth still came, despite levels of losses comparable to that not seen since post-recession.
Last minute brake
The trillion-dollar auto loan debt has prompted many creditors to tighten credit as a result of the current panic and fear for a possible collapse. Delinquency rates march up and inventory kept pooling as many borrowers default on their obligations.
Subprime borrowers make up a quarter of the debts, a fact that is very uncomfortable for many. And of course, they have a reason to. Whether last minute brakes can save the impending disaster remains yet to be seen. But the numbers are definitely not for celebrating.