So what do you do when you"ve pulled forward every single car sale you possibly can courtesy of low interest rates, lengthening terms and generally loosening credit standards targeting incremental subprime buyers? Well, you take a play out of the 2008 mortgage crisis playbook and just start submitting fraudulent loan applications, of course.
And, at least according to a new study from Point predictive, that is exactly what is starting to happen. Per Bloomberg:
Borrower fraud in U.S. auto loans is surging, and may approach levels seen in mortgages during last decade’s housing bubble, according to a startup firm that helps lenders sniff out bogus borrowers.
As many as 1 percent of U.S. car loan applications include some type of material misrepresentation, executives at data analytics firm Point Predictive estimated based on reports from banks, finance companies and others. Lenders’ losses from deception may double this year to $6 billion from 2015, the firm forecast.
Those fraud rates are coming closer to the over-1-percent level for mortgages in 2009, when the financial crisis was boiling and more lenders started reporting incidents to one another, Frank McKenna, chief fraud strategist at the firm, said in an interview. While those losses will sting lenders, the impact on the overall economy will likely be much more muted than with the housing crisis, just because there’s less car debt outstanding.
Even so, “We see an extraordinary amount of parallels between the auto and mortgage industries, in terms of the rising levels of hidden fraud,” McKenna said. For home loans, it’s hard to know how widespread the deception was before 2009, because lenders often didn’t report information to one another and may not have even investigated incidents of probable lying much on their own, McKenna said.
Shocking, and we thought this exponential auto loan growth was all legit...
Point Predictive has put together a consortium of lenders to share data about dealers, loans and potential fraud. The group, now 13 strong, met at the headquarters of Santander Consumer USA in Dallas last month. Common types of fraud include borrowers and/or auto dealers lying about income and employment, including falsifying paystubs. Loan applications can also include bogus information about the type of car being financed, or its value.
Now, right on cue, the New York City Department of Consumer Affairs has filed a petition against a group of Major World dealers alleging that fraudulent loan applications had been submitted to lenders that contained, among other things, inflated income and asset statements. Per NBC New York:
According to a petition filed by the New York City Department of Consumer Affairs, sales people at the Major World dealer group prepared dozens of auto loan applications containing inflated income and asset statements. The false information helped unqualified buyers purchase vehicles they could not afford.
In 2014, the I-Team reported on Margaret Zollner, a car buyer who accused staff at Major Chevrolet of tricking her into signing a loan application that falsely stated her income was $60,000, even though she was an unemployed senior citizen who needed food stamp benefits to get by.
Zollner"s application also reported that she owned a house, but she rents her home.
"They said I made $60,000 a year. I was on food stamps," Zollner said.
At the time, a spokesperson for Major World suggested Zollner was responsible for signing her name to inaccuracies on the loan application.
Perhaps this helps explain those surging "deep subprime" loans...
...and the predictable resulting surge in delinquencies....
...and loss severities...
All great signs of a "plateau."
