Subprime Redux?

It's not mortgages as it was in the 2000s. Now it's car loans. Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime. This year subprime auto loans are up 15%.

Many of the characteristics of the mortgage subprime debacle are present with these auto loans. The accuracy of the information in many loans is highly questionable, often income is overstated and employment history, more or less, made up. The loans are often at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers.And the loans are being sold to people who can't really afford them. The loans are bundled into complex bonds - which are listed as investment grade by the ratings agencies - and then sold as securities by banks to insurance companies, mutual funds and public pension funds. The interest rates can be as high as 23%.

Results are deteriorating. In the first three months of this year, 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, according to Experian. In another sign of trouble ahead, repossessions, while still relatively low, increased nearly 78 percent to an estimated 388,000 cars in the first three months of the year from the same period a year earlier. The number of borrowers who are more than 60 days late on their car payments also jumped in 22 states during that period.