Tuesday, April 11, 2017
AMERICA FACE-TO-FACE WITH THE NEXT MELTDOWN AND TRILLION DOLLAR BAILOUT: Subprime Auto Loan Market Nears Collapse
By J. Cooper
On April 3, the Detroit Free Press reported the liquidation of Valley State Credit Union, a small community credit union serving state employees in Saginaw, Michigan. The collapse of the credit union highlights the growing problem of ballooning auto debt and subprime vehicle loans that are rattling the banking and finance markets. This growth of auto loan debt is also an indication that the auto sales surge of recent years is heading for a collapse, threatening further layoffs in the industry.
The Saginaw credit union was acquired by ELGA Credit Union of Burton. Valley State had been taken into conservatorship last August, as it became clear that delinquent used-vehicle loans had caused it to be “operating in an unsafe and unsound condition.” In July 2015,
delinquent vehicle loans between 30
and 59 days overdue at Valley State had
mushroomed to $1.59 million from
$57,222 the year prior.
Automotive industry analysts are expressing concern that the mushrooming of auto-related debt and the preponderance of subprime vehicle loans, fueled by investors looking for high yields, could be the next financial bubble. As of the fourth quarter of 2016, auto loan debt in the United States had reached $1.16 trillion—an increase of $93 billion over 2015—rivaling the enormous sums of student loan debt that now stands at $1.31 trillion.
BLOG: HERE WE GO AGAIN! THE
TRILLION DOLLAR BAILOUTS!
Following the financial crash of 2008 and the
subsequent recession, auto sales plummeted.
But with the government bailout of Wall
Street and interest rates near zero, by 2012
the banking industry saw their opportunity in
the unregulated field of auto financing. The
subprime mortgage debacle brought
mortgage lending under federal regulation,
but no one was looking at vehicle financing.
Bankers seeking quick profits began offering
products to less-qualified borrowers, much as
they had done with mortgages prior to 2007.
Sales of both new and used vehicles hit record
numbers in 2016 for the seventh straight
year. However, since the beginning of this
year, sales are tumbling, heading for an
annual decrease of more than 12 percent.
Additionally, auto leasing has reached record numbers, from 13.2 percent of the market in 2009, to 28 percent in 2015. While this has helped boost the sales and profits of the car manufacturers, those leased vehicles have begun flooding the used-car market, as most leases are between two and four years. The market glut is expected to drive down used car prices, cutting into new-car sales and corporate profits.
For both manufacturers as well as lenders, the future looks grim. According to the April 7 Automotive News, “With both bad loans and interest rates on the rise, financial institutions are becoming more selective in doling out credit for new-car purchases, adding to the pressure for automakers already up against the wall with sliding sales, swelling inventories and a used-car glut. ‘We’ve been having a party for a few years and it was fun,’ said Maryann Keller, an industry consultant in Stamford, Connecticut. ‘Now lenders are getting back to basics.’”
Wall Street is concerned that what happened to Valley State Credit Union could spread throughout the banking industry. Delinquencies on car loans over 30 days were up in December by 14 percent over 2015. By the end of 2016, over 6 million borrowers were more than 90 days late with their vehicle payments, also a new record.
Auto loan delinquencies of 30 days or more reached $23.27 billion in the fourth quarter of 2016, or 3.8 percent of all auto loan debt. The seriously delinquent portion, those more than 90 days past due, reached $8.4 billion.
Predatory lending practices relating to auto loans are now coming under some scrutiny. Santander Bank, known as the largest packager of subprime auto loans, just agreed to a settlement of $26 million with the states of Massachusetts and Delaware for issuing “unfair and unaffordable” loans, knowing the borrowers would default. According to AP, Massachusetts Attorney General Maura Healey said, “These predatory practices are almost identical to what we saw in the mortgage industry a few years ago.”
Recognizing that millions of auto loans may default this year, lenders are now looking to cast a wider net for struggling borrowers. According to a recent New York Times article, the credit bureaus that provide the scores that determine a borrower’s interest rate and credit limits are now looking at “alternative” criteria, such as cell phone payments, to entice those who have no credit history, or have previously defaulted on loans, to become the new victims of the predatory banks.
Auto finance companies are alarmed about looming defaults, but not to the extent they were with the collapse of mortgages in 2007 and 2008. The vehicles of borrowers with low credit scores and higher risk are often fitted with GPS technology and “kill switches” that can be activated if a loan is even one day past due. There are more than 2 million of these devices on the roads. The practice of “ignition interruption” has now become so widespread that the Federal Trade Commission is investigating the abuse of these tracking devices relating to privacy violations.
Tightening credit, swelling inventories and the glut in the used-car market point to more plant closures and layoffs on the horizon. Ford has already threatened layoffs in both Michigan and Mexico, while General Motors has announced 4,600 permanent job cuts since December.
Sales for Detroit-based US automakers made a weak showing in March. Fiat Chrysler sales were down 5 percent while Ford showed a 7.2 percent decline. GM sales were up just 1.6 percent. Meanwhile, Nissan sales rose 3 percent while Toyota sales fell 2.1 percent. Overall auto sales increased at an adjusted annual rate of 16.63 billion, lower than projections of 17.3 billion.
THE OBAMA CONSPIRACY TO DESTROY AMERICA: DRUGS, POVERTY and OPEN BORDERS
SOARING POVERTY AND DRUG ADDICTION UNDER OBAMA
"These figures present a scathing indictment of the social order that prevails in America, the world’s wealthiest country, whose government proclaims itself to be the globe’s leading democracy. They are just one manifestation of the human toll taken by the vast and all-pervasive inequality and mass poverty."
One ObamaCare bailout folks are familiar with is for “risk corridors.” Those bailouts involve direct payments to insurance companies that suffer losses in the ObamaCare exchanges. A less well known bailout is “Net Worth Sweep,&rdquo...
April 11, 2017
By Jon N. Hall
One ObamaCare bailout folks are familiar with is for “risk corridors.” Those bailouts involve direct payments to insurance companies that suffer losses in the ObamaCare exchanges. A less well known bailout is “Net Worth Sweep,” which involve raids on private property.
On March 23, the Daily Caller ran Drew Johnson’s “Trump Should Stop Obama Scheme That Steals Money For Obamacare.” Johnson reports on the theft of monies from both Fannie Mae and Freddie Mac to give to health insurance companies that can’t make a profit under ObamaCare:
Since 2013, however, all of the profits generated by Fannie and Freddie have been swept into the Treasury Department’s general funds. Not a dime has been returned to investors or set aside for a rainy day.
This raiding of Fannie and Freddie profits has become known as the “Net Worth Sweep.” The maneuver, which takes place regularly with no Congressional authority, inappropriately diverted $240 billion in dividends from investors to federal programs such as Obamacare.
On March 31, Investors Unite ran “Another Quarter of Fannie and Freddie’s Profits Swept into a Government Slush Fund”:
The latest scheduled quarterly dividend payment had been watched particularly closely because it was the first tangible action by the new Administration on Fannie and Freddie. Since the Obama Treasury took advantage of the conservatorship in 2012 to implement the Net Worth Sweep and drain enough of Fannie and Freddie’s capital to weaken but not kill them, the situation for taxpayers, home buyers, capital markets and, of course, shareholders has gone from bad to worse. The day when the under-capitalized government sponsored enterprises come to the taxpayer for more money draws near.
On March 3, Forbes ran Richard Epstein’s “D.C. Circuit Refuses To See Limits To Government Power And Inexcusably Upholds The Net Worth Sweep.” Epstein, a fellow at the Hoover Institution, details the Feb. 21 opinion in a case brought by Perry Capital LLC against Obama Treasury Sec. Lew. The 5-page article may be too technical for some readers, but I’ll quote from his final paragraph:
In closing, there is a simple test by which to measure the probity of the combined actions of FHFA and Treasury. If FHFA were replaced by a private trustee, and Treasury were replaced by a private supplier of fresh debt or equity capital, both parties would end up in jail if they concocted a scheme that resembled the NWS. Everyone would cut through the various smokescreens to see that the excess dividends were a naked raid on the interests of the other shareholders as happened here. The great tragedy of the majority opinion is it follows the all-too-common practice of giving the government a free pass when its own motives are as corrupt, or more so, than comparable private parties in similar roles and with similar legal duties. From the time that I started to work on this issue, I always said that litigating against the government is like playing craps with loaded dice. So far the sorry performance in Perry Capital has validated that gloomy prediction. The time is running short, but there needs to be some serious judicial action either in the Circuit Court or Supreme Court to correct against the egregious statutory contortions and manifest injustice of sustaining the Net Worth Sweep.
Net Worth Sweep brings to mind the bailouts of the auto companies during the Obama era, when bondholders got the shaft. I remember when we had private property in these United States.
On April 4, Tucker Carlson hosted Josh Rosner, who gave a quick gloss of these “irregularities,” shall we call them, in the Obama administration. Fox News doesn’t seem to have posted the segment, but I found it here. Or watch it here:
Jon N. Hall of Ultracon Opinion is a programmer/analyst from Kansas City.
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