Posted on 06/24/2016 12:51:34 PM PDT by Lorianne
Negative subprime auto data from CarMax's earnings is bad news for regional banks, according to investment firm Piper Jaffray.
"CarMax is the largest used car dealer in the country, we believe these developments indicate we will continue to see more pressure on used car prices in the coming months," Piper Jaffray's Kevin Barker wrote in a note to clients Tuesday.
He added, "The decline in sales from lower tier borrowers (near-prime to subprime) are a clear signal the market recognizes subprime lending may have been overextended. These developments continue to confirm our thesis that lower used car prices and lower auto sales will pressure earnings/revenue for banks most exposed to the auto sector, in particular" Huntington Bancshares, Wells Fargo and BB&T.
But it’s a golden age for the repo business!
I guess I don’t understand certain things.
One of those is, why are loans being given to subprime borrowers in the first place?
Related to that, I understand those with bruised credit will pay higher interest rates. But are the interest rates charged not enough to compensate for giving loans to a group of people who have proven to be poor credit risks??
And I thought that lenders pool their loans together, so that this line of business will still be profitable, even if they have a handful of bad loans they need to write off.
Based on what I’ve said above, maybe I’m just not understanding how these loans work, or some finer points escape me.
You have to remember that Obama burned all the used cars in his first term
You have to remember that Obama burned all the used cars in his first term
Think of the Community Reinvestment Act of 1977. That is why people get loans for cars they cannot afford, and will drive until it is repossessed.
Banks and other lending institutions cannot practice fiscal judiciousness or they will be accused of being racist and become subject to investigations. Unless the person requesting the loan is not a minority/woman. They can probably be as rigid as they wish, there. Who will call them on it?
So then, credit standards are enforced against white men?
But anyone who can claim membership in an officially recognized grievance group will not have to meet any standards??
Unbelievable.
It is a pretty easy business on the surface. Cars are fairly easy to repossess and resell. The borrowers are required to carry full coverage. Often, a substantial down payment or trade in is required as well.
It is really a national business because the assets are highly movable except in markets such as Alaska or Hawaii where it could get expensive. One would think the risk was fairly minimal and easily manageable. But then, there is that big government factor throwing crap on the scale in an unpredictable fashion.
NO!
I see folks go there all too often.
Did the Community Reinvestment Act of 1977 cause these problems? THINK!
If it did, we would have had massive fall-outs as early as the early 80s. People would not have been able to make their mortgages then. Instead we went through the 80s, 90s, and until 2008 before there was massive mortgage fall-out.
You may be able to point back that far for the roots, but it was actions taken twenty or more years later that brought on the sub-prime debacle.
It was during the Clinton years when the Leftists hobbled the loaning institutions, and it was during the Bush years when knowing what was going to result, that we did absolutely nothing to prevent it.
Clinton/Bush own this! Please don’t blame it on Carter and Reagan. If they were to blame, this wouldn’t have taken until 2008 to come to fruition.
And by blaming it on others, you let the real major culprits skate.
I am a debtor creditor attorney, and I have clients in a lot of loans I would never make or take. The rates are high and often the car is worth far less than the loan balance. But most of these people are very motivated to make their car payments because they need transportation. In my particular town, there’s really no alternative way to get around. Distances are too far to walk and there’s not much by way public transportation. Some borrowers still default, but their car loan is one of the last things they stop paying.
I do wish my clients wouldn’t get themselves into the loans where the balance on their prior car is rolled into the loan on the current car. These are almost always a bad deal.
That's the same reason why black guys can shoot as many black kids as they want in a weekend, but a white guy shoots one, they go berserk. Different standards for different groups again.
good. I need a cheap used car
Tell me when the crash hits, so I can get into the mkt.
Take a look at a Car Hop loan.. I am an honest used car guy (ya.. I know.. there are a few of us out there)..
Cars I’d put on the lot for 2995 are sold for 7995 and the buyers are put in to 72 month loans at 23.5%..
They come in trying to trade a car/truck that was poorly repaired, falling apart and they owe 100Xs what it’s worth and they have only had it 4 months or so.
Maybe some nice deals on the used car market. Of course, sub-prime owners can produce sub-prime used cars, too. "They goan repo it, so less take it out an tay it up!"
I disagree. The CRA is the foundation of it all. It laid the groundwork for the regulatory process, the coercion that would make it all possible.
This was so enormous that it is no surprise to me that it would take decades to have its full effect.
Carter, that SOB and his ilk got it enacted. Reagan and the Republicans did nothing to reverse the corrosion, Bush and Clinton put it on steroids, and GWB paid it plenty of lip service through his eight years, even knowing the damage it was causing. His administration did try to raise the alarm back in 2002-2004, but Barney Frank and his comrades were assuring everyone it was all fine. There is video of it.
There is plenty of blame to go around, and Bush and Clinton should get their fair share, but few in government were blameless, and many should be prosecuted.
See, I look at it a little differently than you...I think not assigning blame to people who laid the foundation and put it all in motion lets those people skate.
Thank you for the response.
The results speak for themselves.
Neither you or I can change it.
There were no blow-outs from 1977 until 2008.
Banks and other lending institutions cannot practice fiscal judiciousness or they will be accused of being racist and become subject to investigations."
Agreed.
It was that law that laid the foundation upon which the house of cards was eventually built, over time.
I have always paid cash for any car/truck I have owned...I am an avid follower of the simple equation that “the cheapest way to get from point A to point B and back again to point A” I drive a 1971 International Harvester 1210 pick (paid cash) went through it and have found it to be one of the best made and simple to fix. Between insurance and registration (stickers for the plate) it breaksdown to less than 50 dollars a month to drive a 3/4 ton American made (entirely) truck . I just hauled home a slide in camper that weighs over 1 ton. So please tell me why these people go so far in debt as opposed to seeking out practical / repairable transportation? I should point out that there are no computers on my truck...all vacuum and hydraulic.....I feel sorry for any plastic / 1/32 inch sheet metal tuna can that hits this great rig...
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