from 2014 on, private-equity firms piled into the subprime auto-loan space, the lending became very aggressive, underwriting standards went to heck, and delinquencies surged as a result. But interest rates charged on those loans were so high – well into the double digits – that the game could go on, with defaults ballooning to levels far higher than during the peak of the Great Recession, and those were the Good Times.
Then we get the biggest unemployment crisis in a lifetime, and the delinquency rates should have spiked from these highs into the sky. But the opposite happened – as shown by the three red columns in the chart below, marking the change in percentage points of the delinquency rate compared to the same month in a year earlier:
But for now, it doesn’t matter how impossible it will be for the borrower to catch up later. Because the loan is in a deferral program, the lender can mark it as “performing,” and accrue the interest income though the borrower is not making payments, and the lender can thereby “cure” a delinquency already on its books, or avoid one. The customer doesn’t have to make payments while the loan is in deferral. And everyone is happy.
Well, OK, that’s a little bit of a problem. When these policies were implemented in March and April, the expectation was that by summer most of those people would be back at work, that this was a temporary blip. Many people were in fact able to go back to work, but other people have since lost their jobs, and the number of people claiming state and federal unemployment insurance has hovered near 30 million for months:Subprime Auto-Loan Delinquencies, Loan Deferrals & Stimulus Curdle into Curious Phenomenon | Wolf Street
AGR; In other words, the S#(#) is about to hit the fan and spray pretty stinky stuff all over the place.. How long can all of this funny money be deferred, delayed and denied?
How long can a foot wide open chest wound be closed up with a single layer of tissue paper in order to keep the patient alive?