Bloomberg reports Subprime Auto Delinquency Is Near Crisis Levels at Non-Bank Lenders.

There’s a growing rift in car debt: Delinquent subprime loans are nearing crisis levels at auto finance companies, while loan performance at banks and credit unions continues to improve, data from the Federal Reserve Bank of New York show.

Almost 9.7 percent of subprime car loans made by non-bank lenders -- including private-equity-backed firms catering to car dealers -- were more than 90 days past due in the third quarter, the highest rate in more than seven years, according to the New York Fed’s quarterly report on household debt and credit. That’s more than double the 4.4 percent delinquency rate for subprime loans made by traditional banks, a number that’s been falling pretty steadily since the end of the financial crisis.

Auto Finance Delinquencies Soar

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To keep auto sales high, lenders have to accept riskier and riskier borrowers. That share is taken by auto finance companies as banks are increasingly fearful of losses.

As is typically the case, Bloomberg did not link to its source for the report. Instead it linked to a Bloomberg page with useless general information about the Fed.

Here is the NY Fed Auto Delinquency Report.

And once again, here is the New York Fed Household Debt and Credit Report.

Here are some more charts from the household debt report.

30-Day Delinquencies by Loan Type

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30-Day Delinquencies by Loan Type

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Report Highlights

Aggregate delinquency rates ticked up slightly in the third quarter of 2017. As of September 30, 4.9% of outstanding debt was in some stage of delinquency. Of the $630 billion of debt that is delinquent, $408 billion is seriously delinquent (at least 90 days late or “severely derogatory”). Flows into delinquency deteriorated for some types of debt. The flow into 90+ delinquent for credit card balances has been increasing notably for one year, and that measure for auto loans has increased, and the flow into 90+ delinquency for auto loan balances has been slowly increasing since 2012.

Deflationary Setup

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Auto delinquencies are on a steady upswing while credit card delinquencies show a serious acceleration.

For still more charts please see Household Debt Reaches New Peak: A Very Deflationary Setup.

Repeating my Q&A from earlier today:

With stagnant real wages, how precisely is this debt supposed to be paid back?

Here's a hint: It won't.

This increase in unpayable debt is a very deflationary setup.

BIS Deflation Study

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

The BIS did a historical study and found routine price deflation was not any problem at all.

**“**Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

CPI deflation is not to be feared. More precisely, CPI deflation is a benefit. Falling prices increase purchasing power by definition and thus raise standards of living.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

Mike "Mish" Shedlock

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Deep Subprime Auto Loan Delinquencies Reach 2007 Levels: The Next Big Short?

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Serious Credit Card Delinquencies Rise for the Third Straight Quarter: Trend Not Seen Since 2009

Every quarter, the New York Fed publishes a report on Household Debt and Credit.

Subprime Credit Card Losses Bite Capital One: Income Down 20%, Charge-Offs Up 30%

Capital One missed earnings estimates by a mile as Credit Card Charge-Offs Jump 30%

Household Debt Up 18 Consecutive Quarters to a New Record, Card Stress Rising

Household debt is up 18 consecutive quarters to a new record high. Credit card stress is on the rise in most age groups.

Consumers Turn Frugal On Cards but Nonrevolving Credit Up Sharply

Total consumer credit rose $19.9 billion in August but credit card debt fell after a sharp rise last month.

60-Day Delinquency Rate in Packaged Subprime Auto Loans Highest in Nearly Two Decades

“Subprime Flashback” A High level of missed payments for recent subprime loans made recently has raised concerns about underwriting standards.

Reader Asks About Shorting Subprime Auto Sector

A question and some interesting observations came in today from reader “FW” who works at Ford. He asks about shorting the auto sector including auto-backed collateralized loans.