Last month, we reported that mortgage delinquencies charted their biggest quarterly rise ever. Digging more deeply into the numbers, we find even more trouble brewing in the subprime mortgage market.
Of the 8 million active mortgages the FHA insures, 17% were delinquent in July. That ranks as the highest level in history. That translates to about 1.4 million delinquent FHA loans.
How much more can the auto loan bubble blow up before it pops?
Total auto loans and leases outstanding for new and used vehicles increased by another 4.3% year-on-year in the third quarter, according to the latest data from the Federal Reserve. This was a factor in pushing total American consumer debt to a new record of $4.15 trillion in September.
Meanwhile, auto loan delinquencies are surging.
As we reported last week, a record 7 million Americans have fallen 90 days or more behind on their auto loan payments. That’s 1 million more than the previous peak in auto loan delinquencies in 2010. But as Wolf Street points out, there is a big difference between then and now.
Serious auto-loan delinquencies are now on par with Q2 2009 when millions of people had lost their jobs and when the economy was in free-fall. But today unemployment is low and the economy appears to be humming. What gives? “
There are signs that the air may be coming out of the subprime credit card bubble.
According to numbers recently released by Federal Reserve, delinquency rates on credit card balances at commercial banks other than the largest 100 rose to 6.2% in the second quarter of this year. These are credit cards issued by the nearly 5,000 smaller banks in the US. According to Wolf Street, this actually exceeds the peak during the financial crisis and represents a better than 2% jump from a year ago.
Here’s another sign that the air is starting to come out of the subprime automobile bubble.
The default rate on subprime auto loans has reached levels higher than we saw during the financial crisis. As a result, lenders are shutting off the easy money spigot. That’s bad news for the auto industry.
Can the auto industry survive in a high interest rate environment? We’re about to find out.
Earlier this month, we reported that the air has started to come out of the subprime auto bubble. Nevertheless, Americans are still buying cars. Last week, we got a Commerce Department report that consumer spending was up thanks in large part to the strongest auto sales in six months. But there is a dark lining in this silver cloud and the long-term prospects for the auto industry could be dimming.
As Ron pointed out, it’s hard to keep up with all of the distortions in the marketplace thanks to a decade of Federal Reserve easy money.
How do you cover all the bubbles? The nature of what the Fed does by manipulating interest rates to lower than the market rate, everything has to be affected to some degree by a bubble and a distortion and a malinvestment, and excessive debt.”
It looks like the subprime auto loan bubble has popped.
Last year, we reported that the auto industry’s check engine light was on. Now it looks like the thing is totally breaking down. Small subprime auto lenders are starting to go belly-up due to increasing losses and defaults. As ZeroHedge noted, “we all know what comes next: the larger companies go bust, inciting real capitulation.”