Consumer Car Buying Advice Blog

Lately I’ve been reading allot of news articles and blogs that suggest that the recent implosion of the sub prime mortgage industry will have a dramatic effect on the sub prime industry as a whole. It may have an effect on other sub prime industries but I do not think it will effect bad credit auto loan lenders long term.

From what I’ve read, one of the primary reasons for the sub prime mortgage crash was the loan amounts compared to the home values were way out of whack. Mortgage brokers were obtaining high appraisals to meet their short term objectives, closing the loan. These high appraisals resulted in lenders loosing millions if not billions when they had to foreclose on a home. After viewing the loses, the people with the money, wall street, pulled out.Without a line of credit, many mortgage companies were forced to shut their doors.Two of the largest that closed shop were Ameriquest and Aegis.

I don’t think this will happen to bad credit auto loan lenders. One the primary reasons I feel so strong about this is that the auto lending industry has much better data available to value vehicles than the mortgage lenders have to evaluate homes. Home appraisals are done by an appraiser. Used cars values are calculated using Kelley Blue Book, the NADA Used Car Guide, or Black Book.

I have not seen a bad credit auto loan program that uses the appraisal from the used car manager to determine the amount of money that they will lend. Why? Auto loan lenders do not trust the used car manager’s judgment.
So as long as auto finance lenders continue lend money based on book values obtained from real market condition they will be fine.

This entry was posted and is filed under New Cars. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.