HBO’s John Oliver spent this week’s episode of “Last Week Tonight” discussing the rise of subprime auto loans and making comparisons to the subprime mortgage bubble. According to Oliver, nearly 25 percent of all auto loans are now subprime.
While the total size of the asset-backed securities (ABS) market peaked in 2007, auto loan ABS have been steadily on the rise since 2010. One of the driving forces behind deteriorating loan quality is strong ABS demand.
“While the new issue market persistently offers a diverse array of ABS supply, many of these assets run off because they amortize,” Citi explains. “The runoff creates perennial demand for high-quality assets.”
Despite fears that the auto market has ushered in the second coming of the mortgage bubble, some analysts say that the auto ABS market remains safe.
“Despite the higher delinquencies and the increased liquidation rates that come along with them, we find that stressing both default rates and loss severities would rarely lead to even the most subordinated investors experiencing losses,” Morgan Stanley analyst Jeen Ng explains.
However, as John Oliver pointed out, those arguments are…
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