Well, it looks like the news about bhph bad credit car loans is still gloomy. Dealerships offering bad credit car loans are making high sales, but subprime auto loan interest rates are continuing to rise, as are the number of defaults. Now, it seems that these same bad credit loans are infecting some bonds.
Subprime auto bonds connected to bad credit car loans are packaged into securities before being sold to large investors. This isn’t news, but the nature of these securities is changing. A decade after the mortgage crisis caused a major recession, the collateral backing subrime auto bonds is becoming riskier. As discussed in another BHPH Marketplace article, Millions of Americans Can’t Make Auto Loan Payments, and that, combined with the inevitable depreciation of the assets involved, is making these bonds unstable.
According to data from JPMorgan Chase, this hasn’t curbed the popularity of bonds based in bad credit car loans. Wall Street has hurried to provide investors with $3 million in subprime auto backed bonds—nearly double the number sold by this point last year—and as the demand grows, data shows that spreads have dropped to the fourth percentile since last year.
Don McConnell, the senior portfolio manager at Bank of Montreal’s BMO Global Asset Management in Chicago, warns that this could mean future trouble. “As used-car values drop a bit and delinquencies and roll rates begin to increase, the subprime sector will show significant underperformance and lack of decent liquidity,” he stated in a Chron news article.
Will the instability of many bonds backed by bad credit car loans lead to another economic downfall? Or, as the American economy slowly improves, will more bhph customers be able to make their payments, thus making subprime auto bonds, and the bad credit car loans that back them, a safer bet for investors. Time will tell.