PONDERING THOSE “GREAT” AUTO SALES

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Posted on 11th April 2012 by Administrator in Economy |Politics |Social Issues

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You gotta love these stories. The lady in this article sums it up perfectly:

“Even I wouldn’t make a loan to me at this point.”

But that isn’t stopping Ally Financial and the rest of the Wall Street slimeball banks from dishing out car loans and credit cards to anyone with a pulse. There is no doubt in my mind that these banks are doing this because Bernanke and Obama have told them to do so. The Fed has let them know they have their back. When these loans go bad the Federal Reserve will step in and buy up the bad debt and hide it on their balance sheet. This is the plan stan. It will not work. The brand new cars all over West Philly will be repossesed in the next 24 months and the bad debt will skyrocket. And you will be picking up the tab. Again.

 Lenders Again Dealing Credit to Risky Clients

By JESSICA SILVER-GREENBERG and
Published: April 10, 2012

Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

“Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

Consumer advocates and lawyers worry that the financial institutions are again preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost.

“These people are addicted to credit, and banks are pushing it,” said Charles Juntikka, a bankruptcy lawyer in Manhattan.

The banks, for their part, are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.

Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis.

“It’s clear that we are returning to business as usual,” said Mark T. Williams, a former Federal Reserve bank examiner.

The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call “fallen angels,” those who had good payment histories before falling behind as the economy foundered.

A spokesman for Chase, Steve O’Halloran, said the bank “seeks to be a careful, responsible lender,” adding that it “is constantly evaluating the risks and costs of funding loans.”

Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people.

In fact, an increase in lending is a sign that the economy is improving, economists say. While unemployment remains high, consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis. “This is a natural loosening of credit standards because the banks feel they can expand again,” said Michael Binz, a managing director at Standard & Poor’s.

And lenders miss many potential customers if they focus just on people with perfect credit.

 “You can’t simply ignore this segment anymore,” said Deron Weston, a principal in Deloitte’s banking practice.

The definition of subprime borrowers varies, but is generally considered those with credit scores of 660 and below.

The push for subprime borrowers has not extended to the mortgage market, which remains closed to all but the most creditworthy.

Capital One is one lender that has been courting borrowers with damaged credit, even those who have just emerged from bankruptcy, with pitches like, “We want to win you back as a customer.”

Pam Girardo, a spokeswoman for Capital One, said, “Our strategy is to provide reasonable access to credit with appropriate guardrails in place to ensure consumers stay on track as they rebuild their credit.”

Ms. Alejandro, 46, was one of the borrowers fresh out of bankruptcy courted by Capital One. So far, she has turned it down.

David W. Nelms, chief executive of Discover Financial Services, the sixth-largest credit card lender in the United States, told investors this month that the company planned to extend credit to a broader group of borrowers. But, he added, Discover is not “suddenly going to go into the subprime business.”

Credit card lenders extended $12.5 billion in loans to subprime borrowers last year, up 54.7 percent from 2010, according to Equifax and Moody’s, but still below the $41.6 billion in 2007.

Lenders are ramping up their advertising, according to Synovate, a market research firm. Others are developing credit cards specifically aimed at borrowers with damaged credit. Capital One, for instance, introduced a credit card last year that allows these borrowers to lower their interest rate after making timely payments for a year.

Auto loans are particularly attractive for lenders since they were largely untouched by many of the new regulations. The new Consumer Financial Protection Bureau said it had not yet decided whether it would oversee the largest nonbank auto lenders.

At the same time, the market for securities made up of bundles of auto loans is heating up. Last year, investors scooped up $11.7 billion in auto loan securities, up from $2.17 billion in 2008. The pace of securitization in credit cards is slower, with lenders selling roughly 30 percent of their card portfolios to investors, down from 60 percent before the financial crisis, according to S&P.

Steve Bowman, the chief credit and risk officer for GM Financial, an auto lender, said he expected subprime auto loans to continue to grow. Unlike mortgage lenders, Mr. Bowman argued, auto lenders understand how to manage risk while still making loans to borrowers with poor credit.

But Moody’s was already sounding the alarm last year that some very risky borrowers were getting auto loans. The market, Moody’s wrote in a report in March 2011, could be growing “too much too fast.”

Ms. Alejandro is not the only borrower with bad credit to question why anyone would offer a loan. The offer, of course, does not necessarily translate into the issuing of a card.

Shauna Ames, 41, an office manager from St. Paul, said she got a credit card offer from Capital One even though the company had won a lawsuit against her for $5,485 in overdue credit card debt last September. Ms. Ames, who had filed for bankruptcy, said she was surprised at the offer. “I still can’t believe it,” she said. 

Ms. Girardo, the Capital One spokeswoman, said the bank doesn’t solicit customers that it has previously sued. “We believe we can establish long-term relationships with products that are predicated on consumer success,” she said.

14 Comments
  1. Hope@ZeroKelvin says:

    Insanity, just insanity.

    I’ll tell you how this happens. It relates to the general economic ignorance/idiocy of the general population.

    One of the ladies that does my pedicure wants to buy a brand new Camero. These are beautiful cars, no doubt, I have personally lusted for one since I got my driver’s license but could never justify it.

    She thinks she is getting a “great deal” because she can buy this $35,000 vehicle for 3% interest, 5 year loan, nothing down.

    She has no idea what the amount of interest on this loan is, and how if you add that to the principal, that is what the car really costs. Nor has she researched what insuring that car will cost in Harris County, which is on par with NYC, BTW.

    Nor has she any idea of the maintenace cycle/costs of the vehicle over its lifetime. Nor any idea that the vehicle immediately depreciates 10-15% the second you drive it off the lot.

    In short, she really has no idea how much this “great deal” vehicle will really cost her over 5 years, a vehicle which is probably 1.5 to 2 times what her yearly salary is before taxes.

    I tried not to rain on her parade, after all, she was using sharp instruments on my feet.

    But hey! Mebbe I’m looking at this all wrong. Our country is on the Highway to Hell at top speed and accelerating.

    Might as well go out in a Camero, in style, with perfectly painted toenails.

    Heh.

    11th April 2012 at 9:49 am

  2. Stucky says:

    ” …. consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis” —- from the article

    That’s when I stopped reading this horsehit article.

    11th April 2012 at 10:00 am

  3. Stucky says:

    The guy across the street from my sister’s house is a hair-dresser. In his driveway is a new Land Rover (his) and a new Benz (hers).

    I’m only slightly jealous. Must be a shitload of money to be made trimmimg toenails and cutting hair.

    Mary Malone … you live in NJ, right? Mind if I cut your toenails?

    11th April 2012 at 10:05 am

  4. Kill Bill says:

    ” …. consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis” —- from the article

    That means walk away from the underwater abode and tell the car title company to come get their investment with a blown engine.

    11th April 2012 at 11:29 am

  5. Ron says:

    Sounds like washington thinking.

    11th April 2012 at 11:31 am

  6. Kill Bill says:

    You really can’t fix stupid. -MM

    “We must shift America from a needs- to a desires-culture. People must be trained to desire, to want new things, even before the old have been entirely consumed. […] Man’s desires must overshadow his needs.” -Paul Mazer Wall Street investment banker working for Lehmans

    11th April 2012 at 11:46 am

  7. Administrator says:

    Delinquencies are down because the banks wrote off $500 billion and charged it to you. Rinse and repeat.

    11th April 2012 at 11:51 am

  8. Celtic Tiger says:

    This credit push happens every presidential election year. Gotta keep the sheep contented.

    Gotta keep those GM plants running full speed so the UAW guys can pump those dues into the Democratic Party.

    11th April 2012 at 12:13 pm

  9. AWD says:

    Yea, one economy, ney, world-almost-destroying sub-prime disaster wasn’t enough, why not blow up another? And aren’t student loans the very definition of sub-prime, since the people borrowing don’t even have a job, and aren’t likely to get one? It’s a debt race to the finish line of insolvency for our country.

    11th April 2012 at 1:16 pm

  10. Thinker says:

    Good a place as any for a nifty little chart:

    -3_0.img_assist_custom-640×465.png

    11th April 2012 at 2:23 pm

  11. Thinker says:

    dammit:

    America’s Debt Is Greater than Entire Eurozone’s (and U.K.’s) Combined Debt

    11th April 2012 at 2:25 pm

  12. ecliptix543 says:

    MM – No, you can’t fix stupid. The best you can hope for is to sterilize them as soon as possible to keep them from breeding. So far, we’re not doing well with the sterilizations… just look at the “Approved” choices being presented for the upcoming farcical ‘election’.

    11th April 2012 at 2:25 pm

  13. TeresaE says:

    OMG Hope, that is $630 a month in payments! Plus taxes, title and destination charges (over 5 years), plus plates, plus insurance.

    Plus the additional insurance after the local cops issue a few tickets to the race car.

    No wonder I’m driving a six year old mini-van bought through a college surplus department at less than $7k.

    My payments are zero per month.

    MM is sooooo right, you can’t fix stupid.

    No matter how many trillions you waste trying.

    11th April 2012 at 3:16 pm

  14. Hope@ZeroKelvin says:

    @TeresaE:

    I know, isn’t it crazy??? But most people don’t think about all those other “hidden” costs and then they “wonder” why they are always broke.

    Financial moonbattery. It isnt just for governments anymore!!!!!

    11th April 2012 at 9:53 pm

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