Auto Loan Write-Offs Beginning To Accelerate

by: otterwood

Rising energy losses at US banks are a known risk as oil prices have fallen for well over a year now, however, another risk related to auto loans may be on the horizon. Since the financial crisis record low interest rates have helped auto lending increase dramatically with outstanding loans surpassing $1 trillion last year. Given the fast loan growth some are worried lowered underwriting standards could lead to losses. We covered the deterioration in lending standards here.

According to the FDIC auto loan write-offs have already started with write-offs rising 16% year-over-year in the fourth quarter of 2016. Additionally further write-offs may be on the way as auto loans overdue by 30 to 89 days rose to 1.82% during the same period, see the chart below.

An important point to note is these loans highlighted by the FDIC are quality auto loans banks kept on their books. On top of these loans a significant amount of risker loans were packaged and sold to investors or held by non-bank firms. This could spell trouble if the consumer hits a rough patch.
For more details see the Wall Street Journal article here.