Aug 2, 2017

Subprime auto defaults are up, but this time it's no crisis

Scott Jacobs/AP

Some on Wall Street are worried that subprime auto lenders like Credit Acceptance Corp, Ally Financial, and Santander will soon be in trouble, given reports that a rising share of borrowers with low credit scores are delinquent on their loans.

Auto lenders are behaving similarly to mortgage lenders in the run-up to the 2008 financial crash, but experts say we are not headed into another crisis (more below).

Why it's still cause for worry: Lenders are making fat profits, but there is growing evidence that a significant minority are engaging in fraudulent behavior. Borrowers in many cases have little choice but to pay such high rates if they want to be able to commute to work.

The case for concern:

  • It's a growing problem: One trend that has propped up this market is lengthening American commute times. As housing affordability in America's economic centers grows worse, the working poor and middle class are being pushed further away from city centers and reliable public transportation.
  • What to do about it: Two options are incentives to build more affordable housing and investing more in public transportation.

The case against concern:

  • It's actually pretty difficult for a lender to lose money on many of these subprime loans. The interest rates are high, typically in the low teens, but can rise as high as 29%. These payments cushion losses for lenders.
  • The auto-lending market is much smaller than the mortgage market. According to Experian, the total size of subprime auto loan debt outstanding is roughly $173 billion. By comparison, in 2006 alone, mortgage lenders made more than $600 billion in new loans.
  • Cars are easy to repossess, while homes are notoriously difficult, meaning auto lenders lose less money after a default.

Go deeper

Sign of the times: A pro-Warren super PAC

Democratic presidential candidate Sen. Elizabeth Warren at a rally in Nevada. Photo: Alex Wong/Getty Images

A group of women progressives who back Sen. Elizabeth Warren has formed Persist PAC, a super PAC airing pro-Warren ads starting Wednesday in an effort to boost her performance ahead of Saturday's crucial Nevada caucuses, a spokesman told Axios.

Why it matters: Warren has spoken adamantly against the influence of unlimited spending and dark money in politics. But these supporters have concluded that before Warren can reform the system, she must win under the rules that exist — and that whether she likes it or not, their uncoordinated help may be needed to keep her viable through this weekend's contest and into South Carolina and Super Tuesday.

Go deeperArrowUpdated 52 mins ago - Politics & Policy

Pentagon policy chief resigns amid reported discord with Trump

John Rood. Photo: Mark Wilson/Getty Images

John Rood, the Pentagon's top policy official, will resign from his post at the end of the month, CNN first reported and President Trump confirmed.

The state of play: CNN said Rood "was perceived as not embracing some of the changes in policy the White House and senior Pentagon officials wanted," such as peace talks in Afghanistan with the Taliban and a decision to cut back on military exercises with South Korea as the president courted North Korea's Kim Jong-un.

Coronavirus cases rise, as warnings of global pandemic grow

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's NHC; Note: China refers to mainland China and the Diamond Princess is the cruise ship offshore Yokohama, Japan. Map: Danielle Alberti/Axios

We may be "at the brink" of a global pandemic, warns a top U.S. public health official, as cases continue to spread despite containment efforts. Meanwhile, the global economy is being affected, including the tech manufacturing industry.

The big picture: COVID-19 has now killed more than 2,000 people and infected over 75,000 others, mostly in mainland China, where the National Health Commission announced 136 new deaths since Tuesday.

Go deeperArrowUpdated 2 hours ago - Health