Auto credit and the 2005 bankruptcy reform: the impact of eliminating cramdowns
Auto lenders were perhaps the biggest winners of the 2005 Bankruptcy Reform. Cars depreciate quickly, so borrowers often owe more than their car is worth. Prior to the Reform, these borrowers could reduce the principal on their auto loan to the market value of the car through a ?cramdown? in Chapter 13 bankruptcy. The Reform prohibited cramdowns during the first two and a half years of an auto loan. This paper is the first to estimate the causal effect of this anticramdown provision on the price and quantity of auto credit. The authors use a novel empirical strategy that relies on the fact ...
Just Released: Auto Lending Keeps Pace as Delinquencies Mount in Auto Finance Sector
Total household debt increased by $116 billion to reach $12.96 trillion in the third quarter of 2017, according to the latest Quarterly Report on Household Debt and Credit released today by the New York Fed?s Center for Microeconomic Data. Household debt has been growing since mid-2013, boosted in part by steady growth in auto loan balances, which have grown for twenty-six consecutive quarters thanks to record-high levels of newly originated loans. Although new vehicle sales had begun to slump over the summer after several strong years of growth, September and October saw a rebound in sales, ...
COVID-19 and Auto Loan Origination Trends
We study the impact of the COVID-19 crisis on auto loan origination activity during 2020. We focus on the dynamic impact of the crisis across lending channels, Equifax Risk Score (Risk Score) segments, and relevant geographic characteristics such as urbanization rate. We measure a significant drop in auto loan originations in March‒April followed by a near rebound in May‒June. Originations remain slightly depressed until October and fall again in November‒December. We document the largest drop and the smallest rebound in the subprime segment. We do not find any suggestive evidence that ...
Auto Sales and Credit Supply
Vehicle purchases fell by more than 20 percent during the 2007-09 recession, and auto loan originations fell by a third. We show that vehicle purchases typically account for an outsized share of the contraction in economic activity during a recession, in part because a concurrent tightening in auto lending conditions makes car purchases less affordable for many households. We explore the link between lending conditions and vehicle purchases with a novel gauge of credit supply conditions--household perceptions of vehicle financing conditions as measured on the Reuters/University of Michigan ...
Extended Loan Terms and Auto Loan Default Risk
A salient feature of the $1.2 trillion auto-loan market is the extension of loan maturity terms in recentyears. Using a large, national sample of auto loans from the entire auto market, we find that the default rates on six- and seven-year loans are multiple times that of shorter five-year term loans. Most of the default risk difference is due to borrower risks associated with longer-term loans, as those longer-term auto borrowers are more credit and liquidity constrained. We also find borrowers’ loan-term choice to be endogenous and that the endogeneity bias is substantial in conventional ...
Car Prices Drive Up Borrowing
Total household debt increased substantially during the second year of the COVID-19 pandemic, with a $1.02 trillion increase in aggregate debt balances, according to the Quarterly Report on Household Debt and Credit for the fourth quarter of 2021 from the New York Fed’s Center for Microeconomic Data. The yearly increase was the largest seen since 2007 in nominal terms and was boosted by particularly robust growth in mortgage balances, which grew by nearly $900 billion through 2021. Credit card balances, which have followed an unusual path during the pandemic, saw a large seasonal increase ...
Just Released: Who Is Driving the Auto Lending Recovery?
This morning, the New York Fed released its Quarterly Report on Household Debt and Credit for the second quarter of 2013. It shows a $78 billion decline in overall household debt from the previous period. Delinquency rates improved considerably, with the overall ninety-plus day delinquency rate falling to 5.7 percent, the lowest it has been since mid-2008. The Quarterly Report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.
Post-crisis Signals in Securitization: Evidence from Auto ABS
We find significant evidence of asymmetric information and signaling in post-crisis offerings in the auto asset-backed securities (ABS) market. Using granular regulatory reporting data, we are able to directly measure private information and quantify its effect on signaling and pricing. We show that lenders "self-finance'' unobservably higher-quality loans by holding these loans for longer periods to signal private information. This signal is priced in initial offerings of auto ABS and accurately predicts ex-post loan performance. We also demonstrate that our results are robust to exogenous ...
How Much Are Car Purchases Driven by Home Equity Withdrawal?
Previous research indicates that changes in housing wealth affect consumer spending on cars. We find that home equity extraction plays only a small role in this relationship. Consumers rarely use funds from equity extraction to purchase a car directly, even during the mid-2000s housing boom; this finding holds across three nationally representative household surveys. We find in credit bureau data that equity extraction does lead to a statistically significant increase in auto loan originations, consistent with equity extraction easing borrowing constraints in the auto loan market. This ...
What Explains the Post–2011 Trends of Longer Maturities and Rising Default Rates on Auto Loans?
This paper quantifies relationships of long-term auto borrowing and auto-loan default to observable borrower characteristics and economic variables. We also quantify the residual components of the trends in long-term borrowing and delinquency not attributable to identifiable factors. Second, our paper provides new evidence on the relationship between longer-term borrowing and auto-loan default risk. We find that observable factors associated with the choice of a long loan term usually indicate an increased risk of default. We also find that the increasing share of long-term loans and the ...