Don’t Look Now, But The Subprime Auto Bubble May Be Bursting

Jon Alternative Media, Blogosphere, Real Estate

Well, it’s official: the cat is out of the bag on what’s “driving” (no pun intended) record US auto sales.
Anyone who frequents these pages is by now well-versed in the idea of “originate to sell.” It’s the dynamic that helped create the housing bubble and it’s now in full effect in the auto loan space.
The concept is simple. When demand is strong for paper backed by a particular type of asset, Wall Street obliges by cranking up the securitization machine. Thanks in part to the Fed-induced hunt for yield demand for auto loan-backed ABS has been strong. Supply should come in at around $125 billion this year – that’s up 25% from 2014 and accounts for more than half of total consumer loan-backed issuance. Here are the latest projections from BofAML:

This post was published at Zero Hedge on 08/13/2015.