The housing crisis has been going on for over a year now. As the value of peoples' homes drops and loans reset to higher rates, foreclosures rise. But up until recently at least, car loans and credit card payments have been holding their own. This was a sign that consumers still had some money in their pockets.
The Wall Street Journal reported that "about 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month, according to a Lehman Brothers survey of companies servicing these loans."
Investors in financial stocks have probably been hoping that home loan worries, which are a problem at financial firms, would be written off and most of the bad news would be in the past. But $575 billion in car loans are made each year, and that is a huge pool for potential defaults.
Car loans are put into pools the same way home loans are. Those pools are bought and sold based on the overall value and default rate of the loans in the pool.
Now, it looks like the value of those car loan pools is becoming compromised. Which financial institutions own all of those instruments? It is hard to say. But as they start to fail, it is likely that they will become visible.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
12-27-2007 @ 12:50PM
dman said...
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