It’s been a decade since the subprime mortgage crisis tanked the global economy. Now, there’s another potential bubble about to burst.
A rising number of people in Virginia are missing car payments, leading to concerns that the subprime auto lending market is yet another economic bubble on the verge of bursting.
According to numbers from the Federal Reserve, auto loan delinquencies in Virginia have increased 20% over the last three years.
Frank Shafroth at George Mason University says all those people missing their car payments could end up costing taxpayers.
“Greater delinquencies are going to signal more people might lose their cars, and then they’re in a jam. And they’re going to come to the Commonwealth of Virginia. They’re going to come to local governments and need help because they’re over their head in debt.”
Recent years have seen a huge spike in subprime auto loans, and now about one in five auto loans is subprime. Jay Speer at the Virginia Poverty Law Center says lawmakers in Richmond could take action to stem some of the abusive practices in the industry.
“I’ve had clients who bought a car for $10,000, defaulted after just a few months and then they’re selling it at an auction for $1,000. And they’re getting slammed for $9,000 deficiency. It’s called a deficiency judgement. And that doesn’t make any sense.”
All those subprime loans are packaged as bonds and sold to investors as securities, just like all those subprime mortgage loans a decade ago although on a much smaller scale.
This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association.
