Investors place big bets on Buy Here Pay Here used-car dealers - latimes.com
Loans on decade-old clunkers are being bundled into securities, just as subprime mortgages were a few years ago. In the last two years, investors have bought more than $15 billion in subprime auto securities.
Although they're backed mainly by installment contracts signed by people who can't even qualify for a credit card, most of these bonds have been rated investment grade. Many have received the highest rating: AAA.
That's because rating firms believe that with tens of thousands of loans lumped together, the securities are safe even if some of the loans prove worthless.
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This is not from The Onion. It's the Los Angeles Times. This is really happening. They are securitizing subprime auto loans. But don't worry--some of them are rated AAA. That means...nothing could possibly go wrong!!
1 comment:
Pretty nutty idea considering the loan collateral is beater vehicles. But the good news is there is probably little risk of a bubble phenom in beater vehicle prices due to the increased availability of subprime loan capital, potentially leading to a collapse of the beater vehicle market when the loans go south. :)
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