According to industry experts, the subprime auto-loan bonds that are so much dreaded by authorities are actually only a small portion of the overall US auto-loan growth.
For example, Chris Pink, a managing director at Wells Fargo & Co.’s securities unit, believes that bundling car loans into securities will not result in more fuel added to a possible credit bubble – feared to be the birthmark of another Great Recession. Pink commented during a panel discussion at a conference in Las Vegas that around $30 billion to $40 billion of subprime car loans have been encompassed within asset-backed securities, compared with the $203 billion of such loans outstanding. He contends that subprimes have started growing in volume, but the weakest-credit borrowers still make up just 20 percent of auto-loan originations, compared to around 30 % just before the 2008 financial crisis.
The industry has started to seek reassurance that securitization is not initiating another lending bubble. The Us Justice Department in 2014 started investigations of the market to reveal bonds backed by subprime car loans – even sending subpoenas to lenders – in a drive to uncover if mortgage-backed securities could once more fuel a financial bubble and another global crisis. According to Barclays Plc. figures, auto-loan bonds insured grew in 2014 to $97.2 billion – up from $86.7 billion in 2013 and $41.3 billion in 2008. For example, last year, around 4 million of auto loans were sold together with securities, says Jim Ahern, a managing director at Moody’s Investors Service.