patrick.net

From the article:
"Rodney Durham stopped working in 1991, declared bankruptcy and lives on Social Security. Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan.

“I am not sure how I got the loan,” Mr. Durham, age 60, said.

Mr. Durham’s application said that he made $35,000 as a technician at Lourdes Hospital in Binghamton, N.Y., according to a copy of the loan document. But he says he told the dealer he hadn’t worked at the hospital for more than three decades. Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car."

I have no sympathy for the car dealer, nor for Mr. Durham. The car dealer committed fraud and deserves jail time. Mr. Durham stopped working from age 37, sponging off the rest of us for the last 23 years. He is also stupid beyond belief. Let him drive a Ferrari.

Call it Crazy says

Strategist says

I have no sympathy for the car dealer, nor for Mr. Durham. The car dealer committed fraud and deserves jail time.

The car dealers don't care, they are sleazier then the mortgage companies. They just sell off the bad paper and let it be someone else's problem..

The institutions that buy loans from car dealers must be fully aware that massive fraud takes place at the dealership. Must be real profitable for them to continue with business as usual.

Call it Crazy says

The institutions that buy loans from car dealers must be fully aware that massive fraud takes place at the dealership. Must be real profitable for them to continue with business as usual.

I'm sure it is. But at least with car loans, many are repo'ed after only a few months of missed payments versus the banks that let people squat in the houses and destroy them for YEARS!!

The loans are also short term, large part of the payments are principal, and the loans are smaller, making it easier to pay off. They do not have the capacity to bring down the whole economy like mortgages can.

Strategist says

The institutions that buy loans from car dealers must be fully aware that massive fraud takes place at the dealership. Must be real profitable for them to continue with business as usual.

Flashback: http://dealbook.nytimes.com/2007/07/10/citi-chief-on-buyout-loans-were-still-dancing/
>>
But Mr. Prince used an interesting metaphor to describe his company’s situation as a major provider of financing for leveraged buyouts. “As long as the music is playing, you’ve got to get up and dance,” he told The Financial Times on Monday, adding, “We’re still dancing.”

An interesting article. A looong while ago, I noticed how sales were becoming secondary to lending. Make $1 on the sale, but make $3 in interest by selling to someone who doesn't have money. I've studied economic theory quite a bit, and this shouldn't happen, based on rational theory. But since people aren't rational (ie they're stupid, or at least uninformed) selling overpriced stuff on an outrageous payment plan works. Sad.

gsr says

But Mr. Prince used an interesting metaphor to describe his company’s situation as a major provider of financing for leveraged buyouts. “As long as the music is playing, you’ve got to get up and dance,” he told The Financial Times on Monday, adding, “We’re still dancing.”

I like that....as long as the music is playing. But what if the fat lady decides to sing?

Shouldn't these insolvent folks be given the money machine that insolvent banks can access. That is, access to money at less than 1% interest to invest at higher rates of return. Instead, the inept and criminal banks that can access this money machine are screwing the little guys. And how can S&P still be in the ratings business? You see, it is all a scam, for the benefit of a few, and for the harm of many.

Call it Crazy says

The point I was making was that the car loans can be repo'ed and resold quicker

And a car is not a depreciating asset like a house...oh wait...

But seriously this is exactly the difference...the dealer repos the car, washes it real real pretty and resells it 30% over market value to a buyer who does not negotiate. Loss covered. Again, sounds like housing...except that its depreciation is anticipated and fixed based on mileage and age. So losses are limited compared to RE, stocks, etc, that yoyo dizzyingly

So a subprime auto loan borrower owes $2,000 and cannot repay. Out of thin air, $100,000 is placed into an account that cannot be accessed by the underwater debtor. The $100,000 is created out of thin air, just as it is for the banks and just as the banks themselves do. It is invested in risk free 30 year Treasuries, and after one year, the $2,000 in arrears is repaid. The debtor keeps the car. The lender is made whole. And the account is closed.

Sounds like a money machine that is applied to help out the small guy. This is the same type of money machine that banks use. But they don't just invest the free money in 30 year Treasuries, but in much riskier securities. And they greatly lever up the money. And these same scumbags who are granted use of this money machine will come after the small guy and demand he repay a much higher interest rate loan, while they get free money and a money machine.

And why do citizens bend over and take this?

Strategist says

"Rodney Durham stopped working in 1991, declared bankruptcy and lives on Social Security. Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan.

“I am not sure how I got the loan,” Mr. Durham, age 60, said.

Mr. Durham’s application said that he made $35,000 as a technician at Lourdes Hospital in Binghamton, N.Y., according to a copy of the loan document. But he says he told the dealer he hadn’t worked at the hospital for more than three decades. Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car."

I have no sympathy for the car dealer, nor for Mr. Durham. The car dealer committed fraud and deserves jail time. Mr. Durham stopped working from age 37, sponging off the rest of us for the last 23 years. He is also stupid beyond belief. Let him drive a Ferrari.

Obligatory:

Just emailed article to some of my ex co-workers who still work in Wells Fargo sub prime auto loan division.

zzyzzx says

Just emailed article to some of my ex co-workers who still work in Wells Fargo sub prime auto loan division.

I'd be very curious about their take, if you can provide it.

Pwedictions?!?!! (In my best, Johnny Mac voice)

What do you think will likely occur here? Investors stop investing once it's no longer attractive? Then what?

JH says

the dealer repos the car, washes it real real pretty and resells it 30% over market value to a buyer who does not negotiate. Loss covered.

Few repossessed cars fetch enough when they are resold to cover the total loan, the court documents show. To get the remainder, some lenders pursue the borrowers,

Yeah, Wells Fargo will send them a 1099-C

Banks had to write off as entirely uncollectable an average of $8,541 of each delinquent auto loan, up about 15 percent from a year earlier.

zzyzzx says

JH says

the dealer repos the car, washes it real real pretty and resells it 30% over market value to a buyer who does not negotiate. Loss covered.

Few repossessed cars fetch enough when they are resold to cover the total loan, the court documents show. To get the remainder, some lenders pursue the borrowers,

Yeah, Wells Fargo will send them a 1099-C

Banks had to write off as entirely uncollectable an average of $8,541 of each delinquent auto loan, up about 15 percent from a year earlier.

Heh heh, was that from the article I didn't read?

What I failed to include in my indepth analysis is that it probably takes several months of non payment before repo. So they are 1) probably underwater on the car (gap) and 2) could be behind as much as several thousand. People taking on $400-600+ payments on cars...hmmmm...

Don't you think though, that the dealer is making something on this? The bank is writing off the loan, but I would bet the actual loss (dealer + bank) is less than $8541. Geez, people are buying (and defaulting on) expensive cars to have that be the loss!

Howdy There says

But since people aren't rational (ie they're stupid, or at least uninformed) selling overpriced stuff on an outrageous payment plan works. Sad.

And emotional and instinctual, with lots of limbic activity going on.

That one little assumption is why Economists have the predictive power of the Amazing Criswell.

http://www.youtube.com/embed/jb6H14gVWjM

If you drive new car, you are a success. Your neighbors and peers will respect you. You will sell more homes!

CL says

What do you think? Will Auto loans collapse?

NO because Cash for clunkers got rid of all of the self reliant, easy to fix, cheap to maintain, hoopties that didn't need a computer and a cmap unit to run.
Buying new cars will come in and out of fashion but one thing for sure, we're not far from $30K 10 year old cars. and 7 year loans on them.
Nor are we far from self driving alternate energy cars, that start at $120K and no other new cars are allowed to be manufactured. So these gas combustion engine cars that we see now. Will be prime real estate someday for those that will never be able to afford the 2020 $158K Honda Fit.

Not possible. Unless we start having car brokers who make it impossible to buy and sell on a private market.

Blurtman says