Subprime auto has ‘credit issues’: Analyst

Bloomberg

There may be trouble ahead for the debt fueling America’s car addiction. Securities backed by certain auto loans have “some real fundamental credit issues,” according to Chris Flanagan, a top-ranked analyst who specializes in structured finance at Bank of America Corp. The dangers lurk in subprime deals and in bonds supported by car rentals, Flanagan wrote in a note dated June 9. By contrast, the rest of the US economy appears to be on strong footing, with the recovery intact, he said.
Car loans have prompted a wave of consternation in recent months as defaults pick up. Most analysts have argued that the securities themselves are not at risk, and that investors are highly unlikely to suffer writedowns. But ratings companies have begun to ask questions about lenders’ underwriting and whether market conditions, such as low rates, have encouraged looser lending standards. Policy makers and regulators are meanwhile concerned that borrowers are being taken for a ride.