Compliance webinar – poll suggests more growth for auto loan securitization
The automotive lending community seems to be leaning towards a bullish view on continued growth in securitization of auto loans.
That was the indication we got from attendees at a recent webinar on the changing regulatory environment for lenders and dealerships.
The audience of over 150 managers, underwriters, loan officers, compliance managers and others in the automotive financing field heard about compliance issues from Cris Larché, a Senior Director of Regulation & Compliance at Equifax. Larché, who was previously a Consumer Compliance Examiner with the Federal Reserve Bank of Atlanta, focused much of the discussion on the fast-increasing reach of the Consumer Financial Protection Bureau.
Larché also provided an overview of the so called “Qualified Automobile Loan” rule that will affect risk retention for automobile lenders starting in October 2016. In simple terms, the rule (which comes from a group of regulators led by the Fed) requires lenders to retain at least 5% of the risk from their loans. The rest can be sold for securitization. But there are exceptions to the 5% limitation for Qualified Automobile Loans. (That part of Larché’s discussion comes in around the 33 minute mark in case you’re interested in listening to it in the complete recording.)
The requirements may place some pressure on automotive lenders to follow the special requirements of for Qualified Automobile Loans – debt to income of more more than 36%, a cash down payment from a borrower’s personal funds, etc. Not all lenders may want to take those steps.
Given the background, we asked the audience if they expect their own organization’s sale of loans for securitization to rise, fall, or stay about the same.
Many of the attendees said they don’t do any securitization. Others were unsure or expected little change. But one valid way of teasing a trend out of poll data is to focus on those who expect change, and by this measure the majority was clearly on the bullish side. (See chart)
Auto loan securization has been growing at a rapid clip for some years. This Bloomberg article quotes Barclays Plc data showing issuance of securities backed by automobile loans rose to $97 billion in 2014, over twice the level of six years ago. If the webinar attendees are any indication, that trend is set to continue.
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