Submitted by Tyler Durden on 03/17/2016 21:41 -0400
“Originate-to-sell practices are not and have never been prevalent.”
That’s a quote from Citi’s Mary Kane who, in a note out in late January, sought to dispel the notion that subprime auto was the next “Big Short.”
While it may be true that ABS as a percentage of total auto loan origination has been range-bound between 15% and 30% for more than a decade, there’s almost no question that the ability to securitize certain loans is helping to fuel subprime auto.
Just have a look at Skopos Financial and Santander Consumer for instance. No lender in their right mind would make some of the loans that show up in the collateral pools behind their ABS deals if they had to hold them on their own books. For example, 14% of the loans backing a $154 million Skopos deal last year were made to borrowers with no credit score at all. If you need a visual, take a look at this winner from Skopos:
Of course, the real test will come when, amid jitters about the economy, demand for auto ABS (as well as marketplace ABS and any other paper that isn’t backed by something rock solid) dries up. If subprime lending dries up at the same, well, correlation doesn’t necessarily equal causation but…
In any event, you don’t have to believe us, just ask someone who works in the industry. Below, find a first-hand account from a reader who says that when you’re in the subprime auto business and the securitization window slams shut, it’s all downhill from there.
