Santander, top subprime auto lender, verified income on only 8% of loans: Moody’s.
‘Liar loans’ were a factor in the housing bust during the Financial Crisis that brought down the banks. Bank regulators now require lenders to verify income and employment of mortgage applicants and take other steps to make sure buyers can afford the mortgage payment. But in auto loans, no such requirement exists. So here we go again…
Moody’s Investors Service analyzed $1 billion of Asset Backed Securities (ABS) backed by subprime auto loans that Santander Consumer USA Holdings, one of the largest subprime auto lenders, had issued. ‘Subprime’ means the borrower has a credit score of 620 or below. Turns out, Santander had verified the income of the borrowers on only 8% of the subprime loans.
Moody’s found other lapses, including loans with very low or no credit scores and no co-signer.
Back in February, Moody’s had rated these subprime-auto-loan-backed securities as high as Aaa. Among the institutional investors that bought them was Massachusetts Mutual Life Insurance, according to Bloomberg.
Moody’s contrasts Santander’s lack of even basic due diligence, such as verifying income and employment, with an auto-loan based securitization issued by GM’s finance subsidiary AmeriCredit. Moody’s compared the two because they are the top issuers of subprime auto-loan ABS. Turns out, AmeriCredit had verified income on 64% of the loans in the securitization. Bloomberg:
This post was published at Wolf Street on May 23, 2017.
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