VOODOO ECONOMICS: ‘Subprime 2.0’, Lending a $1 Trillion to People With No Proof of Job or Income

Source – phoenixcapitalmarketing.com

“…Our view is that the auto-loan industry is Subprime 2.0: the riskiest, worst area in a massive debt bubble, much as subprime mortgage lending was the riskiest worst part of the housing bubble.In both instances, these lending industries were rife with fraud, terrible due diligence, and the like. So when the debt bomb blew up, they were the first to implode”:

‘Subprime 2.0’, Lending a $1 Trillion to People With No Proof of Job or Income

SubPrime 2.0 is proving far worse than even we suspected.

If you’ve not been following this story, our view is that the auto-loan industry is Subprime 2.0: the riskiest, worst area in a massive debt bubble, much as subprime mortgage lending was the riskiest worst part of the housing bubble.

In both instances, these lending industries were rife with fraud, terrible due diligence, and the like. So when the debt bomb blew up, they were the first to implode.

However, it would appear now that the Subprime 2.0 was even worse than Subprime 1.0 in terms of verifying income.

Santander Consumer USA Holdings Inc., one of the biggest subprime auto finance companies, verified income on just 8 percent of borrowers whose loans it recently bundled into $1 billion of bonds, according to Moody’s Investors Service.

The low level of due diligence on applicants compares with 64 percent for loans in a recent securitization sold by General Motors Financial Co.’s AmeriCredit unit. The lack of checks may be one factor in explaining higher loan losses experienced by Santander Consumer in bond deals that it has sold in recent years…

Source: Bloomberg

Santander only verified income on just 8% of autoloans. Put another way, on more than 9 out of every 10 autoloans, Santander didn’t even check if the person had a job.

Pretty horrific.

However, the story also notes that even the more diligent lender AmeriCredit verified income on only 64% of loans.

So… two of the largest autoloan lenders basically were signing off on loans without proving the person even had a JOB either roughly half the time or roughly ALL the time.

And this is on a $1.0 TRILLION debt bubble.

Meanwhile, stocks are flirting with all time highs.

Sounds a bit like late 2007 doesn’t it?

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

http://phoenixcapitalmarketing.com/dma.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s