Pssst…You Want To Buy A Car?

By | April 12, 2016


‘Are ‘Almost’ Subprime Mortgages And Used Car Loans A Canary In The Coal Mine?’

Having lived through the lending environment that led to ‘The Big Short’, one has to wonder whether we are heading back in the same direction!

George Santayana (circa early 1900’s): ‘Those who cannot remember the past are condemned to repeat it.

CNBC April 12, 2016: ‘Goldman Sachs to pay $5B in mortgage settlement

Sadly, The Financial Crisis Is What Could Be Termed As Recent History

On a morning when it seems as if sayings and quotes are ruling the day, consider that loose (to be kind) mortgage lending practices during the go-go years pre-financial crisis helped to lead the United States and the world to an economic collapse of epic proportions.

Now, only eight or so years later, are we heading back in the same direction?

A return to looser lending practices in the mortgage market certainly raises a yellow caution flag.

From an article at the Hallmark Abstract Service blog in January 2016, ‘SummaryWith an eight-year easy money policy from the Federal Reserve (ZIRP) and real estate prices in some regions above pre-financial crisis highs, subprime mortgages are making a comeback!

And ‘According to data from the latest Equifax National Consumer Credit Trends Report, first mortgage originations for subprime borrowers (consumers with an Equifax Risk Score™ of 620 or below) have shown steady growth from January to October 2015, with more than 312,000 new mortgages originated, totaling $50.7 billion. This represents an increase of 28 percent in number of first mortgage originations and a 45 percent increase in the total balances from the same time a year ago.

“While there are many characteristics that define a subprime loan, such as the specific terms of the loan and the lender who issues it, credit standards are becoming more accommodating to meet market demand…

But there’s more…

You Want To Buy (Lease) A Used (Pre-Owned, Pre-Loved) Car?

In addition to a comeback in mortgages being originated for the less-than-stellar borrower, other sectors of lending have once again become aggressive in terms of who can qualify for a loan.

Will this eventually lead to another crisis? Your guess is as good as theirs but it’s always good to know that a potential problem may at some point exist!

The subtitle in an April 11 article in the Wall Street Journal may say it all…

As inventories of pre-owned vehicles rise, dealers look to buyers who don’t qualify

From the same article…

The typical used-car lessee has a 635 credit score, 80 points lower than a new-car buyer, according to Experian PLC, which produces credit reports.

The bet on leasing could turn sour if used vehicle prices take a dramatic turn. But, lenders like Ally, say they are prepared to handle the downside…

If this all sounds somewhat familiar it’s because you heard similar statements out of mortgage lenders and banks in 2007 and 2008!

I could go on but for those readers who may want to read more on the topic of the state of the used car market, these are links to several good articles from what I consider to be reliable sources…

Mish’s Global Economic Trend Analysis: Peak Preowned: Used Car Inventory Hits Record Level; Congratulations, You Are Qualified

The Wall Street JournalHot on the Lot: Leasing a Used Car

Zero HedgeUsed Car Price Plunge “Could Bring The Whole House Of Cards Down”

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at

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