Subprime auto-loan bonds a small part of loan growth

Jody Shenn
Bloomberg News

The ability to bundle car loans into securities isn’t fueling a credit bubble, said Chris Pink, a managing director at Wells Fargo & Co.’s securities arm.

About $30 billion to $40 billion of subprime car loans are held within asset-backed securities, compared with the $203 billion of such loans outstanding, Pink said recently. While subprime volumes are growing, borrowing by the weakest-credit borrowers represents only about 20 percent of auto-loan originations, compared with a peak of about 30 percent before the 2008 financial crisis, he said.

“I don’t think you’d come away” from looking at those figures “saying it feels like the ABS market is driving a resurgence of subprime,” Pink said.

His comments reflect an industry seeking to temper concern that securitization is creating a new lending bubble.

The Justice Department last year began probing the market for bonds backed by subprime car loans, sending subpoenas to lenders, after mortgage-backed securities fueled a housing bubble and the global crisis.

Issuance of auto-loan bonds rose to $97.2 billion last year, from $86.7 billion in 2013 and $41.3 billion in 2008, according to Barclays Plc data. About 4 million of auto loans were bundled into securities sold last year, according to Jim Ahern, a managing director at Moody’s Investors Service.

Lenders’ use of sales of securities backed by car loans is very different than what occurred in the mortgage-bond market, said Sam Smith, director of long-term funding and securitization at Ford Motor Co.’s finance arm, during the panel at the event arranged at the Structured Finance Industry Group and Information Management Network.

“The tail is not wagging the dog in auto securitization,” he said. “We’re not originating contracts just so we can securitize them.”