ORIGINALLY POSTED BY AUTOMOTIVE NEWS:

Fewer subprime borrowers are paying off their auto loans early, a possible sign that consumers with weaker credit scores are struggling more, according to a report by Wells Fargo & Co. researchers.

Borrowers are making fewer extra payments on loans that were bundled into bonds in 2015 and 2016, compared with loans in 2013 and 2014 bonds, according to Wells Fargo analysts led by John McElravey. The data on prepayments may offer another sign that subprime consumers are having more trouble paying their bills, the analysts wrote in a note dated Tuesday. Borrowers are already defaulting on a growing amount of auto debt.

Last decade, slower monthly payment rates on credit cards were an early sign of the consumer credit cycle changing for the worse, the analysts wrote. For auto loans, slower prepayment may be more of a coincident indicator than a leading one, they wrote.

Growth in auto debt since the financial crisis has set off alarm bells on Wall Street and among regulators who are concerned that borrowers may be overburdened and used car prices are falling. Government enforcement officials have expressed concern that lenders may be making loans that borrowers can't repay, and packaging them into bonds that investors are willing to buy.

Total issuance of subprime auto loan-backed securities rose to $7.1 billion in the first quarter from $5.9 billion in the same quarter last year, according to data compiled by Bloomberg. The growth came even as losses from the debt have risen beyond levels last seen in the aftermath of the 2008 financial crisis.

The researchers at Wells Fargo, the number one seller of bonds backed by subprime auto loans, have said that the bonds pose few risks to bondholders, even though they recommend investors cut their risk exposure because of valuations.

Slowing prepayments can hurt investors in bonds backed by car loans, said Peter Kaplan, a senior portfolio manager at Merganser Capital Management. They can result in a deal's bonds getting paid down more slowly, which can hurt the riskiest securities in a transaction. "I think downgrades are completely possible," with a remote possibility that the riskiest securities will take losses, he said.

Lenders and big bond graders, such as S&P Global Ratings, have pointed to the debts' fast amortization and possible upgrades as reasons for investors to have faith in the securities.

DALLAS, Texas, March 29, 2017 – MUSA Auto Finance, an auto finance company specializing in new and pre-owned vehicle leasing, announced today it has entered into a $125 million warehouse facility with Goldman Sachs and additionally, secured a capital investment of up to $50 million from Crestline Investors, Inc. The capital investment along with the warehouse facility will provide MUSA Auto Finance with the funding needed to launch its auto leasing program nationwide in 2017. MUSA’s business plan is to begin originating new and pre-owned leases strategically in key U.S. major markets, with continued geographic expansion and market penetration in 2017 and 2018.

MUSA Auto Finance was founded by Jeff Morgan, who also owns Mortgages USA and Internet Auto Group. Richard Frunzi, President, former co-founder and COO of Exeter Finance Corp., joined Mr. Morgan in 2016 to create MUSA Auto Finance. The company has recently consummated the asset purchase of an originations, servicing and collections platform based in Jacksonville, Fla. 

“It has always been a career goal of mine to create an auto finance company that would modernize vehicle leasing and make it accessible to more consumers. To be entering into this venture with Goldman Sachs and Crestline Investors sets MUSA on the path to become one of the premier consumer vehicle leasing companies in the U.S.,” said Jeff Morgan, Owner and CEO of MUSA Auto Finance.   

Richard Frunzi, President, added, “Our new funding capacity gives MUSA the ability to build out our infrastructure, and launch our innovative lease program nationally. Our effortless lease program greatly simplifies the leasing process, opening doors to dealer personnel that have never offered a lease product before. In addition, our unique product gives customers an option to lease both new and pre-owned vehicles.”

About MUSA Auto Finance

MUSA Auto Finance maintains its corporate offices in Dallas, Texas, with a Servicing/Collections center in Jacksonville, Fla. MUSA originates its leases from franchise and select independent dealers and will be expanding its sales force nationwide. The company expects to be in 25 major markets over the next 12 months and all 48 contiguous states within the next two years. 

MUSA’s leadership team consists of Jeff Morgan, Owner and CEO; Richard Frunzi, President; Cinde Perales, Chief Compliance Officer; Eric Estes, Chief Operations Officer; and Scott Schondau, Chief Financial Officer. For more information, visit www.musaautofinance.com.  

About Crestline Investors, Inc.
Crestline Investors, Inc., founded in 1997 and based in Fort Worth, Texas, is a credit focused institutional alternative investment management firm with approximately $9.2 billion of assets under management. Crestline specializes in credit and opportunistic investments, including bespoke financing and restructuring solutions for mature or troubled private equity funds. In addition, the firm manages a multi-PM equity market-neutral hedge fund, and provides Beta and Hedging Solutions for Institutional clients. Headquartered in Fort Worth, Texas, the company maintains affiliate offices in New York City, Chicago, London, Toronto and Tokyo. For more information, please visit www.crestlineinvestors.com. 

We interviewed many vendors during NADA 2017 to hear what they think is ahead for the auto industry. Check out our interview with Allstate Dealer Services.

*The thoughts and opinions expressed by interviewees do not reflect the opinions of DrivingSales. These interviews are purely editorial content and are not sponsored by any party.

We interviewed many vendors during NADA 2017 to hear what they think is ahead for the auto industry. Check out our interview with CallSource where we discuss leveraging big data, and ensuring dealerships have the best knowledge when talking to customers.

*The thoughts and opinions expressed by interviewees do not reflect the opinions of DrivingSales. These interviews are purely editorial content and are not sponsored by any party.

We interviewed many vendors during NADA 2017 to hear what they think is ahead for the auto industry. Check out our interview with Answer Financial where we discuss customers who don't have insurance, and the integration of apps into the insurance world.

*The thoughts and opinions expressed by interviewees do not reflect the opinions of DrivingSales. These interviews are purely editorial content and are not sponsored by any party.

Congratulations to Brian Finkelmeyer! He had one of the the most top exclusive blog posts in October: New Realities Of The New Car Business. We appreciate Brian so much for sharing his insights!

Check out our interview with Brian to learn more about new car sales.