Remember the sub-prime mortgage fiasco? It's back -> this time it'sauto loans.

No Car, No FICO Score, No Problem:
The NINJAs Have Taken Over The Subprime Lunatic Asylum

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One of the most trumpeted stories justifying the US economic "recovery"
is the resurgence in car sales, which have now returned to an annual
sales clip almost on par with that from before the great depression.
What is conveniently left out of all such stories is what is the funding
for these purchases (funnelling through to the top and bottom line of
such administration darling companies as GM) comes from. The answer: the
same NINJA loans, with non-existent zero credit rating requirements that
allowed anything with a pulse to buy a McMansion during the peak day of
the last credit bubble.

Bloomberg reports on an issue we have been reporting for over a year,
namely the 'stringent' credit-check requirements for new car purchasers
by recounting the story of Alan Helfman, a car dealer in Houston, who
served a woman in his showroom last month with a credit score lower than
500 and a desire for a new Dodge Dart for her daily commute. She drove
away with a new car.

So there you have it: No Car, no FICO score, no problem. The NINJAs have
once again taken over the subprime asylum.

This time, it seems, is different: because anyone can get a loan. A year
ago, with a credit ranking in the bottom eighth percentile, “I would’ve
told her don’t even bother coming in,” said Helfman, who owns River Oaks
Chrysler Dodge Jeep Ram, where sales rose about 20 percent this year.
“But she had a good job, so I told her to bring a phone bill, a light
bill, your last couple of paycheck stubs and bring me some down
payment.”

Nevermind that a FICO < 500 means that not only will her job be gone in
a few weeks, and that she will likely repay a single-digit percentage
fraction of the total loan. What matters is she showed, well, signs of
life - which makes her immediately eligible for all the loans that the
government is fit to hand out. And frankly why not: with the US
essentially insolvent, and now holding on to every day that the USD is
still a reserve currency like dear life, who can blame her or the
countless others like her, who have given the impression the economy is
recovering when it is merely going through all the final strokes before
it all, once again, comes crashing down?

Is it possible that barely five years later, everyone has forgotten what
happened the last time anyone who wanted credit got it? And what will
happen when those who don't even have a phone bill or a light bill,
nevermind a job, come asking for a Dodge Dart? Why yes: the Pied Piper
of Marriner Eccles is playing the music ever louder, and so all must
dance.

Luckily, even the mainstream media is finally catching on to the fact
that all the "gains" in the best economic sector have been on the back
of subprime.
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While surging light-vehicle sales have been one of the bright spots
in the U.S. economy, it’s increasingly being fueled by borrowers
with imperfect credit. Such car buyers account for more than 27
percent of loans for new vehicles, the highest proportion since
Experian Automotive started tracking the data in 2007. That
compares with 25 percent last year and 18 percent in 2009, as
lenders pulled back during the recession.

Issuance of bonds linked to subprime auto loans soared to $17.2
billion this year, more than double the amount sold during the
same period in 2010, according to Harris Trifon, a debt analyst
at Deutsche Bank AG. The market for such debt, which peaked at
about $20 billion in 2005, was dwarfed by the record $1.2 trillion
in mortgage bonds sold that year.

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Of course, the enablers of this destructive behavior see nothing wrong,
and live under the delusion that sub-500 FICO borrowers will actually
pay them back.
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“It’s a good investment” for lenders, Helfman said. “A person that
has to get from point A to point B, they’re not going to
jeopardize their job. They have to pay the car payment before they
pay anything else.”

His Dodge Dart customer with the bad credit had to pay a higher
than average interest rate. “It wasn’t pretty, but it wasn’t
crazy,” he said. She was “so happy she couldn’t see straight.”

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Of course she did: Greece too was happy when it found Germany - an idiot
lender who fund the Greek drunken spending for a decade (mostly on made
in Germany military equipment). And like the lender, Germany too was
happy: it found a willing idiot to buy everything it had to sell funded
by "vendor financing." Well all know how that relationship ended.

And end again it will, because subprime borrowers are the ones who can
least afford the highest interest rates, which by definition flow
through to the riskiest borrowers.
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Fifty-eight percent of loans taken out to purchase Chrysler Group
LLC’s Dodge brand vehicles in October were with loans above the
industry average of 4.2 percent annual percentage rate, according
to Edmunds, a researcher that tracks vehicle sales.

The average loan for a Dodge charged an APR of 7.4 percent, and 23
percent of the loans had APRs of more than 10 percent, making it
the brand with the highest percentage of loans for more than 10
percent, followed closely by Chrysler and Mitsubishi. Rates on
subprime auto loans can climb to 19 percent, according to S&P.

Dodge U.S. sales rose 17 percent this year through October compared
with a year earlier, propelling Chrysler Group to 43 straight
months of rising sales.

“Right now, you have to have fairly bad credit to be paying above
3 percent,” Jessica Caldwell, an analyst with Edmunds, said in a
telephone interview.

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But since nobody has blown up to date as a result of this latest micro
credit bubble, it must mean everyone is welcome to dance. Sure enough:
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An influx of new competitors into subprime auto-lending since 2010
is sparking concern of eroding underwriting standards, according
to S&P. About 13 issuers have accessed the asset-backed market to
fund subprime auto loan originations this year, according to
Citigroup Inc.

Among the issuers accessing the asset-backed market this year are
GM Financial, the lender founded in 1992 and known as AmeriCredit
before it was acquired by General Motors Co. in 2010, and new
entrants such as Blackstone Group LP’s Exeter Financial Corp.

“We are still skeptical that all of today’s subprime auto players
will thrive,” Citigroup analysts led by Mary Kane said in an Oct.
10 report. The successful companies will be those that can
underwrite and collect on loans while holding costs and defaults
to a minimum, the Citigroup report said.

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We are skeptical that Citi will thrive when the bubble pops, but that's
irrelevant. For now, let the good LTV times roll. LTVs of a whopping
114.5%.
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Consider Exeter Finance Corp., which was acquired by Blackstone
Group LP in 2011. Moody’s Investors Service won’t grant high-
investment-grade rankings to asset-backed deals sold by the Irving,
Texas-based company, citing its limited experience and performance
history.

It has had higher loss rates compared with other lenders, S&P said
in a Sept. 17 report. Julie Weems, a spokeswoman for Exeter,
declined to comment on the company’s losses.

Exeter has issued $900 million of the bonds this year, including
$589 million of securities rated AAA by Toronto-based DBRS LTD and
AA by S&P, data compiled by Bloomberg show.

In Exeter’s most recent deal in September, a $500 million issue
backed by 26,591 loans, the average loan was 112.4 percent of the
value of the car, up from 111.9 percent in a previous offering
sold in May, according to a presale report from S&P. The average
loan-to-value ratio, or LTV, on vehicle sales to consumers with
spotty credit is 114.5 percent this year, compared with a peak
of 121 percent in 2008.

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It is so bad that even Morgan Stanley now gets it:
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“Perhaps more than any other factor, easing credit has been the
key to the U.S. auto recovery,” Adam Jonas, a New York-based
analyst with Morgan Stanley, wrote in a note to investors last
month. The rise of subprime lending back to record levels, the
lengthening of loan terms and increasing credit losses are
some of factors that lead Jonas to say there are “serious
warning signs” for automaker’s ability to maintain pricing
discipline.

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And who gets to eat the losses? Well, as we showed yesterday, the bulk
of consumer credit issuance in the past year, a massive 99%, has been
sourced by the government to go straight into auto and student loans.

http://www.zerohedge.com/sites/defau...ns%20Oct_0.jpg

Which means you, dear US taxpayer, will once again be on the hook when
the music ends.
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http://www.zerohedge.com/news/2013-1...lunatic-asylum

House and car loans are different. The banker ******s assumed that house values go up, so if ninja couldn't pay, banker would get their money back. But they ended up with so many default auctions, that house prices went down, and lost big time.
Cars depreciate, so it would be utter stupidity to lend to people who are unlikely to meet payments.