The Case of the Worthless Collateral

Inspector Hale: subprime car loans in bond pools 60 days late, near 6% by one rating agency's measure. Wren: and the collateral? The Ledger, with a collections trade paper's example: a ten-year-old car, $9,000 owed, worth $2,500; tow it and sell it, the lender clears about $1,300. Wren: so they'd rather not tow it. Nightjar: the car dies, the debt doesn't. Wren: $7,700 still owed, and nobody wants the car.

By Fitch's measure about 6% of subprime car loans in bond pools are at least 60 days late, near historically high levels, and a collections trade paper's worked example shows why an old car is poor security: on a ten-year-old car with $9,000 still owed and worth $2,500, the lender would net about $1,300 after costs and be left about $7,700 short, so a borrower may stop paying because the car, not the payment, became unaffordable.

Starring

Inspector HaleWrenThe LedgerNightjar