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  • Frank Tian

Subprime Loans Again?

Updated: Sep 18, 2022

A WSJ report highlights the rising delinquencies of subprime loans.

Some are wondering - have we learned anything from 2008?

Actually, we did.

As of Q1 ‘22, US consumers hold $15.8 trillion in debts.

- Mortgage: $11.2 trillion.

- Student loan: $1.6 trillion.

- Auto loan: $1.5 trillion.

- Credit card: $0.8 trillion.

- Home equity line of credit: 0.3 trillion.

- Personal loan and others: 0.5 trillion.

🏠 Mortgages

2004-2006: subprime accounts for 20%~ of mortgage origination.

2010-present: <5% origination is associated with subprime.

💳 Credit Cards, Personal Loans, and Lines of Credit

Even though the delinquencies rise over 2021,

They are still near historically low levels.

Delinquencies in 2021 were suppressed with public/private relief measures.

Current delinquency levels are very close to 2019/2020.

🚘 Car Loans

Subprime car loan has been controversial for a while.

Extending a large $ to a marginal consumer over 7 years?

Now this portfolio has delinquency increased steadily since 2019.

Besides higher pricing and fees, subprime lenders also

resort to vehicle repossession and wage garnishment.

This has been criticized by consumer advocates.

Still, the at-risk subprime auto loan is under $50 billion,

A small part of the total $15.8 trillion US consumer debt.

Thus there is no systematic risk of subprime like in 2008.

But for lenders, certain segments are worth close attention.

Interest rate rises 75 bps so far; more effects to show in 12-18 months.

Data sources: Equifax, The Fed.

Further Reading:

The WSJ article:

(Subscription might be required.)

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