Your Monday Morning Doom & Gloom
Subprime loans are now only a small fraction of new mortgages but the trend line, despite some sensible reforms hidden in the muck of Dodd-Frank, is going up. Something similar is occurring with auto sales, where loans with worse terms are being granted to riskier borrowers:
The OCC says that more loans are being pushed based on their low monthly payments, which generally means loan periods are getting longer and puts borrowers further “upside down,” owing more than the car is worth. Data from Experian also show that “deep subprime” loans, to borrowers with credit scores below 550, increased from 2% of the market to 3%. Total subprime and “nonprime” loans are 34% of the market, up just a touch from last year.
It looks like the Fed’s Forever Easy money policy might finally be trickling down from the soaring stock markets, and into risky consumer loans. But what happens once the market for people with bad credit scores willing to take on six-year car loans is tapped? Or when the housing market finally rubs up against shrinking full-time employment?
We’ve seen the world end this way before — and it ends not with a whimper, but with a bang.