BOFI Car loans

From Fletch’s post of the day:
According to the linked 10-Q, ALLY’s net interest spread for the quarter ended 6/30/15 was 2.43% (BOFI’s comparable number was 3.79%). As of June 30, 2015 ALLY has approximately $105 billion of what is classified as “Financing receivables and loans” held on its balance sheet. 90% of that amount represents car loans. Approximately $62 billion are direct consumer auto loans and approximately $33 billion are commercial automotive loans (loans to dealers I believe). The remaining loans, around $10 billion, are mortgage loans.

Then tonight I saw that the car companies had a huge growth in auto sales this last month. That would seem to bode well for BOFI.…
Sales hit an annualized rate of 18.17 million units in September, the highest rate since July 2005, according to Autodata. Overall industry sales rose 16% compared with September 2014.

Ford reported a 23% increase, General Motors posted a 12% gain, and Fiat Chrysler extended its sales streak to 66 consecutive months of gains with a 14% rise. Toyota enjoyed a 16% increase.

Subaru’s hot streak continued as the automaker posted an impressive 28% rise
Hey, I bought a Subaru last July!

There is also believed to be a problem with way too many subprime auto loans, like during the housing bubble, but people tend to need their car for employment and avoid losing it at great cost (people let their house go into foreclosure while maintaining car payments). So I am not too worried.

The asset yield for ALLY is actually a bit surprising to me. My car loan and my wife’s car loan are both at 1.9%. The only reason we even took out a loan instead of paying cash is because the rates were so low. So I’m not sure how ALLY is getting 4.40% on its auto loan portfolio (that’s excluding securities) unless it’s lending to some high-risk borrowers. Someone else can look into that if interested.

Exactly the same for me, keep and invest my cash. So here is where I think they are making riskier loans, but as I said, I don’t think it will burn them and the economy will start to pick up allowing people to keep paying on their loans.

And as for interest income, I would imagine that interest rates on auto loans and real estate mortgages are pretty tightly positively correlated, so I don’t know if there’s any easy path for ALLY on that side of the equation either

Well, home loans are generally based on the 10 year rate, becuase most people don’t hold a loan longer than that. Sure, I have lived in my current house 16 years, but rates kept falling so i refi’ed more than once. Car loans are 4-5 years, but they are somehow creeping higher so that is another way people are keeping the subprime payments a little lower - pay longer.

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Car loans— *Since 2002, the average car loan term has slowly crept past five years, and is now inching past six-and-a-half years. In 2014, 62 percent of the auto loans were for terms over 60 months. And nearly 20 percent of the loans were for 73- to 84-month terms.*ttp://…

Banks have switched from liars loans on real estate to extreme car loans.
84 months? The car will be worth very little by the time it is paid off… If it takes you 84 months to get payment you think you can afford, should you be buying such a fancy car?

"The economy will start to pick up allowing people to keep paying on their loans. " a common belief of bankers, one that always comes back to bite the bank in the a** eventually. But since taxpayers will bail the bank out and executives get to keep their bonuses and pensions ,what do they care?