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Subprime Auto Lenders Have Revived Liar Loans

May 23, 2017 (EIRNS)—American Banker reported today that "Santander Consumer USA, one of the biggest subprime auto finance companies, verified income on just 8% of loans it recently bundled into bonds, according to Moody’s Investors Service."

The fact that such income verification is supposed to be required by law, and that Santander Consumer does not appear to deny that it does not do so, indicates the high degree of risk of a default-triggered explosion in the $300 billion of securitized subprime auto loans.

American Banker continued,

"The lack of checks may be one factor in explaining higher loan losses experienced by Santander Consumer in bond deals that it has sold in recent years, Moody’s analysts Jody Shenn and Nick Monzillo wrote in a May 17 report, which reviewed data required of asset-backed bond issuers that’s recently been made available....

"While the market for the debt is much smaller than the subprime-mortgage market that triggered the Great Recession, regulators have grown concerned that lenders are taking advantage of borrowers and putting them in cars that they can’t afford."

The total volume of consumer debt in the United States economy has just reached a record level—about $12.5 trillion —as has total corporate debt.