Amid Mortgage Mess, Auto Loans Also Lag

February 25, 2008: 08:05 PM EST Feb. 26, 2008 ( Investor’s Business Daily delivered by Newstex) — Like a burgeoning traffic jam, the nation’s subprime mortgage fiasco is spilling over into many arteries of consumer life. In January, the share of prime securitized auto loans at least 60 days late on payments jumped 44% from a year earlier to a 10-year high of 0.77%, Fitch Ratings said Feb. 14.

The share of seriously delinquent subprime auto loans rose to 4.03%, topping 4% for the first time since 1997. Trouble paying bills goes hand-in-hand with economic slowdowns. But auto delinquencies are apt to go higher yet as housing troubles cascade, says Jesse Toprak, executive director of industry analysis for auto site Edmunds.com. “As people are going through foreclosures and bankruptcies, they aren’t going to be able to keep their auto loans,” he said.

Auto loan delinquencies have been especially high in California, Florida, Michigan and Ohio, says Ford f . Those are the states with the most foreclosure filings, according to RealtyTrac. Many auto loans made in mid-2007 shared a lot of characteristics of subprime mortgages and are coming back, says University of Maryland economist Peter Morici, describing loan failures that result in repossessions. “What that’s going to do is dry up financing for all but the best buyers,” he said.

The worse a person’s credit, the less likely he or she will get a favorable financing rate for a vehicle. “We’re starting to see some tightening of lending criteria, particularly by third-party banks,” Toprak said. “The anecdotal data we’re getting from people who finance at a dealership show an increasing credit score required, rate increases for subprime borrowers, and higher down payments, especially for subprime borrowers.” But people with good credit may do quite well.