Since the housing bubble collapsed, it seems that many economists are obsessed by anything that is attached to the word “subprime”. Of course there are certainly good reasons to look at financing, but these guys at the NY Fed really need to delve into the real world before they write about it.
Here:
“Since 2011, the overall delinquency rate of loans originated by auto finance companies has significantly deteriorated. When we split the delinquency rate between auto finance and bank loans in the chart below we see that the 90+ day delinquency rate for bank auto loans has been steadily improving since the financial crisis. In contrast, the delinquency rate for auto finance companies has been sharply increasing since 2014, by more than 2 percentage points.
Further disaggregating the delinquency rates by the origination credit score of the borrower shows that while the delinquency rates for borrowers with credit scores of 660 or higher appear to be somewhat steady, the subprime delinquency rates are really where the pressure is. This is especially stark when we break out auto finance and bank loans, which shows that the delinquency rate – even among borrowers in the same credit score bucket – is considerably higher and rising on the auto finance side. This suggests that bank auto loans may have some additional layers of underwriting – credit score alone does not explain the gap and divergence in the delinquency rates. The overall delinquency rate for auto loans—published in our Quarterly Report—shows only a very slow increase masking the sharp rise in subprime delinquency, which is diluted by the increase in prime loans with better performance.”
“which shows that the delinquency rate – even among borrowers in the same credit score bucket – is considerably higher and rising on the auto finance side.”
Their idea of the “same credit score bucket” is childish. I guess they think that a 619 and a 500 (or even less) are about the same, as their last “bucket” is under 620. And then they make it worse by comparing the delinquency rates of auto finance companies with banks and credit unions in that “same bucket”.
You don’t need a whole lot of insight to question whether they are comparing the same borrowers with their process. I have not seen a whole lot of banks or credit unions doing loans for people much below 600. I know a lot of auto finance groups that do 500 or even less.
At the least, they should have given us the average credit scores of their “same bucket” group for auto finance companies and for banks and credit unions. Then they would have painted an accurate picture versus this waste of time they have presented.
BTW, I’ll bet the average for the Auto Finance groups are more than 50 points less than the bank and credit union groups.
Since the housing bubble collapsed, it seems that many economists are obsessed by anything that is attached to the word “subprime”. Of course there are certainly good reasons to look at financing, but these guys at the NY Fed really need to delve into the real world before they write about it.
Here:
“Since 2011, the overall delinquency rate of loans originated by auto finance companies has significantly deteriorated. When we split the delinquency rate between auto finance and bank loans in the chart below we see that the 90+ day delinquency rate for bank auto loans has been steadily improving since the financial crisis. In contrast, the delinquency rate for auto finance companies has been sharply increasing since 2014, by more than 2 percentage points.
Further disaggregating the delinquency rates by the origination credit score of the borrower shows that while the delinquency rates for borrowers with credit scores of 660 or higher appear to be somewhat steady, the subprime delinquency rates are really where the pressure is. This is especially stark when we break out auto finance and bank loans, which shows that the delinquency rate – even among borrowers in the same credit score bucket – is considerably higher and rising on the auto finance side. This suggests that bank auto loans may have some additional layers of underwriting – credit score alone does not explain the gap and divergence in the delinquency rates. The overall delinquency rate for auto loans—published in our Quarterly Report—shows only a very slow increase masking the sharp rise in subprime delinquency, which is diluted by the increase in prime loans with better performance.”
http://libertystreeteconomics.newyorkfed.org/2017/11/just-released-auto-lending-keeps-pace-as-delinquencies-mount-in-auto-finance-sector.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+LibertyStreetEconomics+%28Liberty+Street+Economics%29
I focused on this:
“which shows that the delinquency rate – even among borrowers in the same credit score bucket – is considerably higher and rising on the auto finance side.”
Their idea of the “same credit score bucket” is childish. I guess they think that a 619 and a 500 (or even less) are about the same, as their last “bucket” is under 620. And then they make it worse by comparing the delinquency rates of auto finance companies with banks and credit unions in that “same bucket”.
You don’t need a whole lot of insight to question whether they are comparing the same borrowers with their process. I have not seen a whole lot of banks or credit unions doing loans for people much below 600. I know a lot of auto finance groups that do 500 or even less.
At the least, they should have given us the average credit scores of their “same bucket” group for auto finance companies and for banks and credit unions. Then they would have painted an accurate picture versus this waste of time they have presented.
BTW, I’ll bet the average for the Auto Finance groups are more than 50 points less than the bank and credit union groups.