These Loans are Junk?

With US interest rates still remaining low, the sector of the US economy which seeks to profit off high interest loans seems to have re-directed its focus to the used auto market. This situation is eerily similar to the housing market bubble that we experienced a few years ago. Here at Barberton Junk Cars, we are in the auto recycling junk cars business. As someone who buys junk cars and removes vehicle scrap, we are constantly monitoring the “big picture” in the automotive market to seek possible correlations and potential indirect outcomes which affect our sector of the market.

A story posted in the NY Times on January 26^th by Michael Corkery and Jessica Greenberg titled ‘Investment Riches Built on Subprime Auto Loans to Poor’ explains the problem as follows: “There is a booming business in lending to the working poor — those Americans with impaired credit who need cars. This market is as much about Wall Street’s perpetual demand for high returns as it is about used cars. An influx of investor money is making more loans possible, but all that money may also be enabling excessive risk-taking that could have repercussions throughout the financial system. In a kind of alchemy that Wall Street has previously performed with mortgages, thousands of subprime auto loans are bundled together & sold as securities to investors, including mutual funds, insurance companies & hedge funds. By slicing and dicing the securities, any losses if borrowers default can be contained, in theory.

Companies like Santander Consumer; GM Financial & Exeter Finance, an arm of the Blackstone Group, such have grown 302%, to $20.2B since 2010. Rising delinquencies & other signs of stress in the market emerged last year; subprime securitizations increased 28% from 2013. The returns are substantial in a time of low interest rates. In the case of the Santander bond offering in Sept., which is backed by loans on more than 84,000 vehicles, some of the highest-rated notes yield more than twice as much as certain Treasury securities, but are just as safe, according to ratings firms.

Questions are being raised about whether this hot market is contributing to a broad loosening of credit standards across the subprime auto industry. A review by The NYT shows that some of the companies, which package & sell the loans, are increasingly enabling people at the extreme financial margins to obtain loans to buy cars.  The intense demand for subprime auto securities may also be fueling a more troubling development: a rise in loans that contain falsified income or employment information. The danger is that lenders may be encouraged to lower their credit standards to churn out loans to keep up with investor demand. The deterioration that securitization can fuel has already begun as lenders reach lower & lower down the credit spectrum to find enough borrowers whose loans can then be put into investments. To entice more borrowers to buy cars, some lenders are lengthening the terms of their loans.” The full article is available here: http://dealbook.nytimes.com/2015/01/26/investment-riches-built-on-auto-loans-to-poor/?_r=0

If looking for someone who buys junk cars in the areas of Chapel Hill, Barberton, Bath, Canal Fulton or Silver Lake, simply contact Barberton Junk Cars. We have been in the vehicle scrap business in the regions of the Portage Lakes, East Akron, North Akron and Wadsworth for several years. In auto recycling junk cars it is crucial that we deliver excellent customer service. To receive cash for a junk car or scrap car in Copley, Clinton, Cuyahoga Falls, Fairlawn or Firestone Park call us at (330) 732-JUNK. If you are at an auto repair facility in Coventry Township, Springfield Township, the Merriman Valley or Mogadore, the car may not be worth paying to repair. We can pick up from Firestone Service Centers, Conrad’s locations, transmission shops, Goodyear stores, Midas locations, NTB locations, Monro Muffler & Brake shops throughout Summit County. Same-day vehicle scrap and free removal is available from our team (who buys junk cars) in Stow, Green, Highland Square and the Portage Lakes. Residents of Norton, Monroe Falls, Peninsula, Tallmadge and New Franklin are encouraged to visit https://www.barbertonjunkcars.com for auto recycling junk cars today!