'No evidence' of subprime auto loan bubble, Equifax economist says

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  • Credit bureau Equifax Inc. has joined other financial data crunching firms that dispute there’s an alarming subprime auto loan bubble that’s about to burst.

    “There’s no evidence for that at all,” Dennis Carlson, deputy chief economist for Equifax, told Automotive News. “Our position is simply that there’s an easy tendency to decry subprime in general because of what happened in the past, and it’s not fair to do that.”

    On Monday, Atlanta-based Equifax issued a white paper titled “Not Yesterday’s Subprime Auto Loan,” together with a press release headlined “Evidence Does Not Suggest Bubble is Forming in Subprime Auto Market.”

    Ghost of mortgages past

    The past to which Carlson referred is the collapse of subprime mortgages, which helped trigger 18 months of recession starting in December 2007. Last month, The New York Times published an article that compared today’s growth in subprime auto loans to the growth in subprime mortgages that preceded the recession. The paper also ran sympathetic portraits of borrowers with subprime credit who found themselves in auto loans they really couldn’t afford.

    A big part of the subprime mortgage crisis was that lenders and brokers originated mortgages to customers who couldn’t afford them. In turn, the mortgages were resold to investors in the form of asset-backed securities without sufficient warning as to how risky they were.

    The Times followed up the article with an even more sharply worded editorial, suggesting that similar problems are brewing for asset-backed securities backed by subprime auto loans.

    Meanwhile, the U.S. Department of Justice added fuel to the debate this month by issuing subpoenas to two subprime auto lending specialists, GM Financial and Santander Consumer USA, asking for information related to the lenders’ sale of asset-backed securities.

    Not in the numbers

    Like some other analysts, Equifax’s Carlson said there is no data to support the notion that mass numbers of subprime auto loans are about to fail without warning. Carlson said he sympathizes with the customers depicted in the articles. However, he said, “The plural of anecdotes is not data.”

    Rather, analysts say, data on the auto finance industry show delinquencies, losses for bad loans, and repossessions are near historical lows, although there have been some small increases for those measures, especially in the subprime sector. Besides Carlson, analysts for Moody’s Analytics, Standard & Poor’s Ratings Services, and the New York Federal Reserve Bank have made similar statements.

    “There’s little to no evidence that there’s a subprime bubble, in any way, shape or form,” Carlson said. “That doesn’t mean there couldn’t ever be; it doesn’t mean there’s no need to monitor the market.”

    You can reach Jim Henry at autonews@crain.com.