Special Report

Participants' Expectations Point the Way to the Future of Subprime Auto

MAY 2019

A new report from Credit Chronometer identifies differences in expectations that could lead to disruption in the securitization market and ultimately impact auto lending to consumers. The report provides a rare glimpse into perceptions and expectations of various groups across the market, which will help individual participants set their own expectations and stay ahead of market shifts. 

Preview the report highlights to learn more and download a copy of the full report. 

Auto Loans

Subprime Auto: Market Momentum Heading into 2020

Nov 07, 2019 | By JOSEPH CIOFFI

Momentum changes everything – it’s hidden, but you know it when you feel it. It has the power to shift markets, so if you find where it’s headed, best to get there first. As we near year end, we’ve identified clues as to where momentum will take subprime auto in 2020, and in subprime auto, the 2019 numbers tell the story. Performance is (almost) Everything Subprime auto origination volume revved up slightly this year and accounted for 21% of all auto loans originated in the first half of 2019, ...

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Auto Loans

How Empty Is the Glass? Experience Level Is Found to Influence Sensitivity to Subprime Auto Market Deterioration and Downgrades

Oct 03, 2019 | By JOSEPH CIOFFI

S&P’s recent downgrade of Class E notes from CPS Auto Receivables Trust (CPSART) 2016-B, 2016-C, 2016-D and 2017-A from BB- to B+ is prompting investors to take a closer look at other deals. It also prompted us to go back over the data from our 360 degree market study to see which constituency group will be most sensitive to the latest news. We found significant differences in the way participants with less than five years’ experience view the sources of risk relative to participants with over ...

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Auto Loans

Subprime Auto: 2019 60-Second Market Review and Insights

Sep 19, 2019 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers Total auto loan debt increased to $1.30 trillion in Q2 2019, up from last year’s $1.24 trillion, and accounted for 9.4% of the $13.86 trillion in national household debt – greater than credit card debt, but less than student loan and mortgage debt, according to Federal Reserve Bank of New York data. In the first half of 2019, new auto loan originations totaled $294.6 billion, of which $60.6 billion was subprime, (credit score <620). The share of ...

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Marketplace Lending

Marketplace Lending: 2019 60-Second Review and Insights

Sep 12, 2019 | By JOSEPH CIOFFI

ABS Issuances, by the Numbers Ten securitizations totaling $3.6 billion closed in Q1 2019, down 14% versus a year ago. PeerIQ attributed this decrease to “market volatility,” but noted this still represents the fourth-highest issuance in any quarter. Average deal size decreased to $366 million in Q1 2019, down from $0.6 billion the previous year. SoFi led the way with three deals totaling $1.5 billion in the first quarter, followed by Kabbage with a $700 million securitization. Performance and ...

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Student Loans

Student Loans: 2019 60-Second Market Review and Insights

Sep 10, 2019 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers Student loan debt stood at $1.6 trillion in Q2 2019, up from $1.53 trillion a year earlier, and now accounts for 10.7% of the $13.86 trillion in household debt, based on Federal Reserve Board of Governors and Federal Reserve Bank of New York data. According to a report issued by DBRS, $19.4 billion in student loan asset-backed securities (SLABS) were issued in 2018, up 16% from 2017. Of the total 2018 SLABS issuances, student loan refinance (refi) ABS ...

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Pace Financing

PACE Financing: 2019 60-Second Market Review and Insights

Sep 05, 2019 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers Commercial PACE (C-PACE) originations have experienced steady growth, totaling $280.8 million in 2018, up 12% from 2017. Cumulative C-PACE financing is now approaching $1 billion since the inception of the program. However, residential PACE (R-PACE) has been a mixed bag. While originations are thriving in Florida, applications for PACE loans declined considerably in California following new consumer protection regulations, which took effect in April ...

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Mortgage Loans and MBS

Residential Mortgages and RMBS: 2019 60-Second Market Review and Insights

Sep 03, 2019 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers New mortgage originations reached $474 billion in Q2 2019, up from $437 billion in Q2 2018 (an 8.5% increase), according to data from the Federal Reserve Bank of New York. Housing debt climbed to $9.41 trillion in Q2 2019, up from $9.00 trillion versus a year ago (an increase of 4.6%). Housing debt remains the leading source of consumer debt in the United States at 68% of the $13.86 trillion in national household debt. In Q2 2019, 9.57% of mortgage ...

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Auto Loans

Winter is Coming. Subprime Auto Participants’ Worst Fears May Come True in a Recession

Aug 22, 2019 | By JOSEPH CIOFFI

The phrase “winter is coming” was more than just a motto to House Stark in “Game of Thrones.” It was both a warning and a call to vigilance – the honor in readiness and preparation that was the key to victory. Subprime ABS participants should heed that call. With uncertainty swirling about the economy, even the most sure-footed optimist should be concerned for what lies beyond the seemingly safe path that subprime auto has followed in the past. With the recent stock market drop and the ...

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Auto Loans

Shut the Fraud Door – Impound Fraud Losses Are Preventable

Jul 25, 2019 | By JOSEPH CIOFFI

It happens too often. An auto lender or servicer learns their collateral has been towed for repairs and the garage claims a priority lien that can only be discharged by payment for “major repairs,” compounded by ballooning storage fees, and there is no expectation of payment by the borrower. Faced with paying for expensive charges and fees on a vehicle, many lenders and owners of retail installment contracts give up their lien without much, if any, investigation. The problem is that in many ...

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Auto Loans

Servicers See It All – Are They the Bellwethers for Subprime Auto’s Future?

Jun 27, 2019 | By JOSEPH CIOFFI

As we continue to break down and analyze the responses to our subprime auto survey, covered in our inaugural market study, servicers, deserve a closer look given the unique vantage point they have in securitizations. It could be easy to overlook them in favor of originators and investors, the alpha and zeta in the chain. Servicers may not have originated the loans, and they may not be as vested in performance as investors, but no other group is on the frontline of collection and loss ...

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Student Loans

Are ISAs the Solution or a New Problem in Student Lending?

Jun 20, 2019 | By JOSEPH CIOFFI

Individual stories tend to get lost when stories are told on a massive scale. Reporting on student debt as a $1.5 trillion problem is like watching buildings being crushed by Godzilla in scenes of sweeping destruction – the focus is on the giant monster and not the impact on the individuals caught in the chaos. Now, a new type of education finance option, known as the Income Sharing Agreement (ISA), is putting the focus solely on the individual student, with the promise of changing the student ...

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Auto Loans

Get the Fraud Out of Here: Highlights from the Dealer Fraud Panel at the NAF Non-Prime Auto Financing Conference

Jun 13, 2019 | By JOSEPH CIOFFI

By popular demand, the National Automotive Finance (NAF) Association’s Non-Prime Auto Financing Conference in Plano, Texas, last week included a close look at one of the biggest challenges facing subprime lenders, dealer and dealer-enabled fraud. I was privileged to be on the panel with an experienced group of professionals: Joel Kennedy, Chief Operating Officer at TruDecision, and newly appointed NAF President who moderated the panel; Zahid Kassem, Principal at Kassem Consulting; Frank ...

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Auto Loans

Anonymous Survey Finds Reports of Subprime Auto’s Health Are Greatly Exaggerated

May 29, 2019 | By JOSEPH CIOFFI

“There will be time, there will be time To prepare a face to meet the faces that you meet” - T.S. Eliot It’s not uncommon for the privacy of a setting to imbue a conversation with candor, and for the public situation to lead to prevarication. Remember all the folks who stated publicly they could never vote for a certain Presidential candidate, and yet . . . here we are. Diverging statistics in various reports (a recent example being the difference between the latest NY Fed Household Debt and ...

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Student Loans

Something iiBIG Just Happened: 11th Annual Education Finance & Loan Symposium

May 16, 2019 | By JOSEPH CIOFFI

Last week, Joseph Cioffi moderated a panel on valuation and trends in student loan securitizations at the iiBig 11th Annual Education Finance & Loan Symposium. Below, he provides key takeaways from the conference and shares insights from his fellow panelists: Grant Carwile, Managing Director at SL Capital Strategies LLC Jonathan Riber, Senior Vice President, U.S. ABS at DBRS Melvin Zhou, Director, ABS Consumer at Kroll Bond Rating Agency As the panel discussed at the conference, two of the best ...

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Student Loans

Watch Out for Madden v. Midland Risks in Education Lending

May 03, 2019 | By JOSEPH CIOFFI

Success stories of marketplace lending in consumer credit markets are plentiful. They provide models of success for lenders seeking to leverage technology to reach underserved markets, but along with the successes, there is a significant legal issue that has impacted marketplace lending of which student loan lenders and investors should be aware. We’ve written about Madden v. Midland Funding (Madden) risks in prior blogs and articles in connection with marketplace lending. A recent settlement ...

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Student Loans

Behind-the-Scenes Strategies for Success – Part Two: We Speak to Revenue Connections on the Importance of Borrower Attributes to Student Loan Collections

Apr 17, 2019 | By JOSEPH CIOFFI

Take care of your business at home, before searching for greener pastures. It’s a key takeaway from Part One of our interview regarding subprime auto: lenders and servicers with modernized collection and recovery systems have a solid foundation for profitability that should be a requisite before embarking on business development plans. In Part Two of our discussion with David Albers, CEO of Revenue Connections, we asked David to share his advice on ways to positively impact collection efforts ...

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Auto Loans

Behind-the-Scenes Strategies for Success: We Speak to Revenue Connections on Improving Collections to Combat Latent Market Risks

Apr 11, 2019 | By JOSEPH CIOFFI

Sometimes, it’s what you can’t see that matters most. First, the bad news: after years of economic growth and generally good times, consumers’ credit scores may be inflated. Like 50 is the new 40, a prime score today may be the equivalent of a sub-prime score pre-financial crisis. If you believe a leopard doesn’t change its spots, a high credit score may be masking a borrower’s likelihood to default in bad times, and the risk on subprime loans is bigger than believed at origination. Now, the ...

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Auto Loans

Following the Backup Plan – Part Two: We Talk to CAR Financial Services on the Keys to Successfully Engaging a Backup Servicer

Mar 29, 2019 | By JOSEPH CIOFFI

This is part two of our interview with the executive team at CAR Financial Services, a subprime auto finance company with over 25 years of experience providing customized backup and successor servicing. In part one of our interview, we discussed the benefits of having a backup servicer in place before trouble starts. But once you decide to take the prudent course and engage a backup servicer, how do you know you are getting the best value from the relationship? Here, we discuss with CAR the ...

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Auto Loans

Part One: As Delinquencies Rise in Subprime Auto, We Explore a Protective Strategy with Backup Servicer, CAR Financial Services

Mar 22, 2019 | By JOSEPH CIOFFI

If subprime auto delinquencies continue to rise and the risks continue to grow, it will be cold comfort to those who saw it coming, if they haven’t taken protective measures. There’s no glory being on the wrong side of right. From this perspective, there is real value in any service that has the potential to help participants see ahead of the curve and mitigate risks. With this in mind, we spoke to Justin Bannister, Director of Centralized Operations, and Oscar Lopez, Specialty Products ...

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Auto Loans

Subprime Auto: The Truth Is Out There

Feb 28, 2019 | By JOSEPH CIOFFI

Red and blue is the new black and white, but the country could use a lot more purple. Seems few can take a position publicly these days unless it’s extreme – whether it’s a political debate or the meaning of the New York Fed’s recent Quarterly Report on Household Debt and Credit showing an uptick in subprime auto delinquency. Intelligence includes the ability to see the other side’s point of view. The truth is out there – and it can be found in the gray area between the absolutists. There Are ...

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Auto Loans

How Subprime Auto Participants Can Avoid the Hell of a Future Unseen

Feb 14, 2019 | By JOSEPH CIOFFI

If you want to know the truth, no one can really predict the future of any market by themselves; everyone is limited by data and perceptions. Without shared knowledge and experience, the future remains a puzzle only time can solve. Where there is limited information, J.D. Salinger’s prediction is inevitable: “the fact is always obvious much too late.” But in subprime auto ABS, we don’t have to succumb to Salinger’s fatalism. By taking the pulse of all types of industry participants – lenders, ...

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Student Loans

When An Act Is Not A Disclosure, States Win the Preemption Battle

Jan 16, 2019 | By JOSEPH CIOFFI

Like Ali v. Frazier II and III, it’s not much of a rivalry if one side keeps winning the decision. The battle began when the Department of Education fired a shot across the bow with its letter arguing that state laws attempting to regulate student loan servicers – whether through licensing requirements or consumer protection laws – were preempted by federal law, which calls for uniform administration of federal student loan programs. Now state victories are starting to pile up. Given consumer ...

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Auto Loans

Honor Finance’s Downfall Shows Anything Can Happen

Dec 05, 2018 | By JOSEPH CIOFFI

No one had suffered any losses, or at least it seemed no one could remember having done so. S&P had not downgraded any subprime auto loan ABS since just after the turn of the century or any other auto loan ABS since 2011. Credit enhancements were widely deemed sufficient to absorb any worst-case scenario. With a long track record of success and protections in place, few blinked when one non-bank lender, Honor Finance, went decidedly deep down the credit scale. It was 2016 and Honor Finance had ...

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Mortgage Loans and MBS Pace Financing

Tiny Spaces, but Lots of Room for Pace-Type Financing

Nov 20, 2018 | By JOSEPH CIOFFI

Move over mortgages – there’s a new kind of real estate that could benefit from a new type of funding. As higher interest rates and rising prices are making affordable housing a challenge in many markets, cities can fight the problem with a small-scale solution – accessory dwelling units (ADUs). What’s an ADU? ADUs are additions (attached or detached) to homes or converted spaces within already existing buildings that can be used as rental units. Local governments on the west coast have become ...

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Mortgage Loans and MBS

Once Bitten, but Not Shy: Subprime Mortgage Lending Is Alluring Again

Oct 31, 2018 | By JOSEPH CIOFFI

Bright, shiny objects are hard to resist. Like the glowing orb cast by the anglerfish – the last thing its prey sees before the deadly bite – subprime lending is back with the potential for profits shining like a beacon. There are several ways for lenders and investors to grab a piece of the action, but are the latest moves tempting a fate similar to 2007? There’s smoke . . . Although the housing market has been a relative sea of calm in recent years, the mortgage market has slowed down. ...

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Student Loans

As Less Enforcement Leads to More Lawsuits, We Speak to Education Loan Finance on Ways Lenders and Servicers Can Avoid Future Issues

Oct 17, 2018 | By JOSEPH CIOFFI

It’s been said that a war doesn’t determine who is right, but rather, who is left. Although there’s been much talk of an epic battle between states and the federal government that will determine the scope of federal preemption in the student loan space, it’s not going to be much of a fight if only one side shows up.  If current trends hold, it looks like states will be left to dominate the legal landscape of consumer protection. In the wake of statements by the resigning student loan ombudsman ...

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Student Loans

Student Debt Burden: Whose Problem Is It, Anyway?

Sep 20, 2018 | By JOSEPH CIOFFI

It’s back to school time, and there’s so much noise about a student loan crisis that there’s a need to corral all the noisemakers and to gain an understanding of what’s actually going on. Sister Mary Elephant had the right idea when she scolded her classroom to be quiet some 40 years ago. It does sound pretty bad. Student debt surpassed $1.5 trillion earlier this year, and it’s estimated that nearly 40 percent of borrowers will default on their student loans by 2023. But talks of a collapse are ...

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Auto Loans

Dis-Honor in a Downgrade – Strong Management and Credit Enhancements Mean More Today Than Yesterday (But Not as Much as Tomorrow)

Aug 02, 2018 | By JOSEPH CIOFFI

There’s a caution flag out for subprime auto loan securitizations. The Class C tranche of Honor Finance’s HATS 2016-1 – the deal that jump-started the debate as to how low deep subprime issuances could go before subprime auto ABS’s reputation for safety would be blemished – has been downgraded by S&P and KBRA. And now, what investors looked for yesterday is likely different than what investors will look for today. Two areas to watch: the strength of management and the level of credit ...

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Pace Financing

PACE Financing: 60-Second Market Review and Insights

Jul 17, 2018 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers To date since the inception of Property Assessed Clean Energy (PACE) financing, $5.17 billion has been advanced to homeowners under residential PACE (R-PACE) programs, and an additional $672 million has been advanced for commercial PACE (C-PACE) projects. In 2017, R-PACE originations totaled $1.6 billion, down 6% compared with 2016. In 2018 so far, R-PACE originations have reached $372 million. C-PACE originations, on the other hand, are on the rise, ...

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Mortgage Loans and MBS

Residential Mortgages and RMBS: 60-Second Market Review and Insights

Jul 12, 2018 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers New mortgage originations reached $428 billion in Q1 2018, down from $491 billion in Q1 2017 (a 12.9% decrease), according to data from the Federal Reserve Bank of New York. However, housing debt climbed to $8.94 trillion in Q1 2018, up from $8.63 trillion versus a year ago (an increase of 3.6%). Housing debt remains the leading source of consumer debt in the United States at 68% of the $13.21 trillion in national household debt. As such, it can be a ...

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Auto Loans

Subprime Auto Loan Crisis Chronometer Update

Jul 02, 2018 | By JOSEPH CIOFFI

“They are who we thought they were!” Observing the rising tide of borrower delinquencies in subprime auto lending, I’m reminded of that famous outburst by the former NFL coach, Dennis Green. No one should be that surprised when subprime borrowers default. The question has always been and will continue to be whether credit enhancements – like overcollateralization and excess spread – will be sufficient to absorb the resulting losses.  Now that lower grade tranches have gained popularity among ...

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Marketplace Lending

Marketplace Lending: 60-Second Market Review and Insights

Jun 27, 2018 | By JOSEPH CIOFFI

ABS Issuances, by the Numbers Seven securitizations totaling $4.3 billion closed in Q1 2018, up 34% versus a year ago and representing the second-highest issuance in any quarter (after Q4 2017). Q1 issuances comprised $2.1 billion in student loan ABS, more than double Q1 2017 and the highest ever quarterly issuance of student deals. Total ABS issuance is expected to climb to $18 billion in 2018, up 30% from 2017. Performance and Practices Delinquencies increased in Q1 2018 across the consumer ...

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Student Loans

Student Loans: 60-Second Market Review and Insights

Jun 20, 2018 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers Student loan debt rose to $1.52 trillion in Q1 2018, up from $1.44 trillion a year earlier, and now accounts for 10.7% of the $13.21 trillion in total household debt, based on Federal Reserve Board of Governors and Federal Reserve Bank of New York data. According to a report issued by DBRS, $16.7 billion in student loan asset-backed securities (SLABS) were issued in 2017, up 10% versus a year ago. Of the total 2017 SLABS issuance, student loan ...

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Student Loans

iiBig 10th Annual Education Finance & Loan Symposium

May 17, 2018 | By JOSEPH CIOFFI

Last week, Joseph Cioffi was a featured speaker at the iiBig 10th Annual Education Finance & Loan Symposium in Alexandria, Virginia.  He participated in a panel regarding the latest trends and issues impacting collections and also moderated a panel on valuation and trends in student loan securitizations.  Below, he shares key takeaways from the conference and shares insights from his fellow panelists. The conference was highly informative, including the insights of the experts on the valuation ...

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Auto Loans

Usury: An Old Concept, Up to New Tricks in Subprime Auto

Apr 23, 2018 | By JOSEPH CIOFFI

Usury has made quite a comeback from the dust heap of old law treatises to become a crucial concept that has shaped modern credit markets. It recently returned to public awareness in marketplace lending, where online lenders have avoided making loans in states comprising the Second Circuit, such as New York, due to an unfavorable usury decision. Now, light has been shed on subprime auto financing and an exception to usury laws that’s creating risk for an already shaky market. Usury: It’s An Old ...

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Student Loans

The Latest Non-Answer to the Student Loan Debt Burden: Foregoing Social Security Benefits

Mar 16, 2018 | By JOSEPH CIOFFI

College students – prepare to be educated on a new case of Hobson’s choice, a term typically used to describe situations where there appears to be a choice available, but in reality, there is no choice at all.  It’s named after a stable owner in England who rented out horses, but would only offer customers the horse nearest the stable door.  But this time around, the concept is reflected in a proposed bill that would offer student loan borrowers debt elimination in exchange for delaying their ...

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Auto Loans

Electric Vehicles Will Create Risks, Spur Changes in Auto ABS

Mar 06, 2018 | By JOSEPH CIOFFI

New Tech, New Risks There are always risks to forging a new path. When it comes to electric vehicles (EVs) like the Model S and Model X that back Tesla’s latest deal, there are peculiar risks beyond those that normally accompany auto asset-backed securities (ABS). Given a lack of historical data, there is the risk of uncertain residual or resale values, and moreover, the potential for those values to fall below expectations for any number of reasons. For example, new technology may emerge that ...

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Auto Loans

LISTEN: Center for Auto Finance Excellence’s “The Roadmap” Podcast – “How ABS Credit Enhancements Are Masking Subprime Risk”

Mar 05, 2018 | By JOSEPH CIOFFI

Joseph Cioffi recently sat down with William Hoffman, Associate Editor of Auto Finance News, for an episode of “The Roadmap,” a podcast from the Center for Auto Finance Excellence, a site dedicated to providing best practices for auto finance industry executives and investors. Joseph and William discussed trends apparent in recent subprime auto loan securitizations, and the outlook for the market going forward, including a close look at the interrelationships between credit enhancements, credit ...

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Student Loans

The Economic Payoff of a Student Loan Payoff

Feb 21, 2018 | By JOSEPH CIOFFI

For all the talk about Dreamers in the national immigration debate, a recent research paper positing the positive effect of erasing the nation’s $1.3 trillion student debt burden has given the term new meaning.  If someone could wave a magic wand and make student loan debt disappear, we would hear the collective cheers of student borrowers all the way to the moon.  But rather than treat such an act like a fairy tale, a group of economists here on earth went about determining the kind of ...

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Auto Loans

What the Fargo?  Doubling-down on Loans and Deposits is a Dubious Move Following the Fed’s Order

Feb 15, 2018 | By JOSEPH CIOFFI

Wells Fargo is being put on a highly restrictive diet by the Federal Reserve and won’t get any relief until its compliance and governance shape up.  Under the terms of the Fed’s Consent Order, Wells cannot grow its consolidated assets beyond the total consolidated assets reported at the end of 2017.  Although Wells is dismissing the effect of the Order as a nothingburger, if there’s really no effect, it’s probably because Wells already lacks opportunity for growth in deposits and lending as a ...

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Auto Loans

Subprime Auto in 2018: Riding a Market That’s All Show and No Go

Jan 31, 2018 | By JOSEPH CIOFFI

If the subprime auto loan asset-backed securities (ABS) market collapses, any post-mortem is likely to begin and end with the underlying auto market.  Of course, it won’t all be about sales practices and consumer trends – there would also likely be closely-related contributing factors in lending and ABS practices.  But despite growing concerns, following the 2018 Detroit Auto Show, it appears the auto market is poised for a year of activity centered mainly around “innovations” that are ...

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Mortgage Loans and MBS

Subprime Residential Mortgages and RMBS in 2018: A Tale of Two Cycles

Jan 29, 2018 | By JOSEPH CIOFFI

Ten Years Gone, but the Memory Remains Litigation related to pre-financial crisis subprime mortgage lending and securitization has resulted in a decade-long hangover for many of those who participated in the boom times. The boom actually lasted only four or five years for most participants, but more than a decade later, many are just now drawing closer to resolution of legacy disputes.  The lingering headache for lenders, sponsors, trustees and investors explains the caution that has been the ...

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Pace Financing

PACE Financing in 2018: Against the Wind

Jan 25, 2018 | By JOSEPH CIOFFI AND SEIJI NEWMAN

Whether or not you believe in global warming, the recent frequency of severe climate-related events – from mudslides to bomb cyclone snowstorms – suggests Thomas Friedman had it right years ago when he coined the phrase “global weirding.” One would think that in this environment, the outlook for Property Assessed Clean Energy (PACE) financing, which makes energy efficiency possible for the average homeowner, would be sunny and bright. Consider further that Bitcoin, a mostly speculative pursuit ...

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Marketplace Lending

Marketplace Lending in 2018: A DIY Mindset

Jan 22, 2018 | By JOSEPH CIOFFI

There is no doubt marketplace lending, by offering speed and flexibility not historically seen in traditional banking, has done its part to foster the “do it yourself” (DIY) era. At its core, the DIY mindset starts with a question – why pay someone to do a job or share your profits or glory, when you can do it on your own? And ideas come to fruition through the vast amount of information now available to model success. In this DIY age, it seems anyone can start a company, create a fund or even ...

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Student Loans

Student Loans in 2018: Debt Relief Discussions Will Become De Rigueur

Jan 18, 2018 | By JOSEPH CIOFFI

2018 may be the beginning of the end of an education finance system that has resulted in overburdened students and families struggling to pay back loans that were too high at their inception relative to the reasonable income potential of the degree earned. Change won’t come overnight, but potential solutions should be put in motion this year, mainly aimed at relieving the student loan debt burden. Below are a few touchstones for change that would signal the beginning of the end of the current ...

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Marketplace Lending

From On Fire to Under Fire: Marketplace Lending Enters 2018 Taking on Flak

Dec 20, 2017 | By JOSEPH CIOFFI

Familiarity might breed contempt, but it seems nothing brings out the detractors like success. After a meteoric rise, marketplace lending has had its share of challenges and scrutiny, but the future should still be bright for such an industry on the forward edge of technology and consumer needs. Yet marketplace lending seems to be ending 2017 under an unwarranted attack from regulators and commentators determined to find similarities in marketplace lending to the subprime mortgage market in the ...

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Auto Loans

LISTEN: ValueWalk’s ValueTalks Podcast – “The Vulnerability of Subprime Auto Credit Enhancements”

Dec 18, 2017 | By JOSEPH CIOFFI

Joseph Cioffi recently sat down with Raul Panganiban of ValueWalk, a site covering the latest financial news impacting hedge funds and asset managers with an emphasis on value investing, for their podcast “ValueTalks.” Joseph and Raul discussed the importance of credit enhancements in subprime auto securitizations, and in particular, Joseph’s views regarding their vulnerability. The discussion builds on Joseph’s thoughts first shared on a post on Credit Chronometer. Following the warnings in ...

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Auto Loans

Subprime Auto Risks: ABStention of Doubt is No Longer a Luxury

Nov 06, 2017 | By JOSEPH CIOFFI

As we said in our last post regarding vulnerability in credit enhancements and litigation risk, subprime auto ABS investors have historically slept easy in light of ample credit enhancements that have provided a protective cushion from losses. Based on the reactions, it seems some have been stirred from their slumber. The question now is what’s next?  Will market participants, after kicking the tires, find reason for alarm or will they hit the “snooze” button and go back to sleep? To paraphrase ...

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Auto Loans

Subprime Surprise? Subprime Auto Overcollateralization May Not Be Overly Protective

Oct 06, 2017 | By JOSEPH CIOFFI

Historically, investors in subprime auto asset-backed securities (ABS) have been able to sleep well at night. They have rested easy in part because credit enhancements in securitizations have protected them from losses.  Today, due in large part to the safety expected from credit enhancements, rumblings about the parallels between subprime auto lending and pre-financial crisis subprime mortgage lending – and the cataclysmic end those parallels could portend – have barely disturbed the subprime ...

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Mortgage Loans and MBS

Residential Mortgages and RMBS: 60-Second Market Review and Insights

Sep 25, 2017 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers New mortgage originations reached $421 billion in Q2 2017, down from $427 billion in Q2 2016 (a 1.41% decrease). Housing debt reached $9.14 trillion in Q2 2017, up from $8.84 trillion in Q2 2016 (a 3.82% increase). Housing debt, at 68% of the $12.8 trillion in national household debt, continues to be far and away the leading form of consumer debt in the United States. Even so, quarterly originations are less than half than they were at their peak of ...

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Marketplace Lending

Marketplace Lending: 60-Second Market Review and Insights

Sep 18, 2017 | By JOSEPH CIOFFI

ABS Issuances, by the Numbers Nine ABS deals totaling $3 billion closed in Q2 2017, a 76% increase from Q2 2016. Q2 ABS issuances included approximately $2 billion in consumer (up 28% versus Q1 2017) and approximately $1 billion in student (down 5% versus Q1 2017). All deals were rated. Total ABS issuance is expected to be over $11 billion in 2017. Performance and Practices Performance continued to weaken as delinquencies and charge-offs increased in Q2 for personal, student, and subprime auto ...

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Pace Financing

PACE Financing: 60-Second Market Review and Insights

Sep 14, 2017 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers $3.7 billion has been advanced to homeowners under residential Property Assessed Clean Energy (R-PACE). Additionally, nearly $500 million has been advanced for commercial PACE (C-PACE) projects. Although R-PACE currently accounts for just .03% of the $12.8 trillion in household debt, it is one of the fastest growing sources of consumer credit and expected to double within the next year. Through May 2017, the cumulative issuance of R-PACE loan ...

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Student Loans

Student Loans: 60-Second Market Review and Insights

Sep 14, 2017 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers Student loan debt rose to $1.34 trillion in Q2 2017, up from $1.31 trillion at the end of 2016, and now accounts for 10.4% of the $12.8 trillion in total household debt. In Q2 2017, $3.3 billion in student loan asset-backed securities (SLABS) were issued, down 34% versus year ago. Of the total first half 2017 SLABS issuance of $7.9 billion, student loan refinance (refi) ABS issuances were $2.3 billion, a 30% increase versus year ago. Traditional ...

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Student Loans

Show Me the Note, Again …

Jul 27, 2017 | By JOSEPH CIOFFI

Years ago, “show me the note” contagion took hold in the subprime mortgage market. Borrowers launched widespread attacks on foreclosure actions once tales of successful early challenges were reported in the media.  With the recent reports in The New York Times about National Collegiate Student Loan Trusts’ problems enforcing student loans due to incomplete documentation, the same contagion could again take hold in the nation’s courts. In the aftermath of the 2008 financial crisis, courts were ...

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Marketplace Lending

On the Dark Side of Automation: Borrowers Will be Affected but Marketplace Lending is a Potential Bright Spot

Jul 17, 2017 | By JOSEPH CIOFFI

As lenders lean on data, algorithms and automation for more efficient loan underwriting, observers have noted that these largely untested tools have yet to go through an economic cycle. The greatest challenge for automated lending, however, may lie in the very technology that drives it. Artificial intelligence and automation aren’t just for lenders, after all—and as companies across industries adopt them in the coming years, the impact on borrowers’ economic stability could be severe.  But ...

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Auto Loans

On The Dark Side of Automation: Impact on Subprime Auto Borrowers

Jul 11, 2017 | By JOSEPH CIOFFI

Self-driving cars, car sharing and subscription-based vehicle services: these are destined to affect the auto industry in ways that will make the current sales slump and shift from cars to SUVs seem like a bump in the road. Predictions vary widely as to when the sea change in how we think about cars and how they fit into our lives will come, but its inevitable arrival is often portrayed as part of a brighter, safer, cleaner and more efficient tomorrow. The dark undercarriage of this issue is ...

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Mortgage Loans and MBS

Oh, the Indemnity! Claims for Reimbursement May Follow RMBS Litigation Settlements

Jun 16, 2017 | By JOSEPH CIOFFI AND SEIJI NEWMAN

When the Roman philosopher, Seneca, said, “Every new beginning comes from other beginning’s end,” he probably didn’t have litigation cycles in mind, but the quote is apropos of recent actions by defendants in RMBS litigation on the heels, or in anticipation, of their concluding litigation. The statute of limitations may have expired on new claims for repurchase or fraud based on alleged loan defects in pre-financial crisis subprime RMBS deals, but a settlement or litigation award paid out by a ...

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Marketplace Lending

Evolution or Regression: The Choice for Marketplace Lenders

Jun 16, 2017 | By JOSEPH CIOFFI AND MASSIMO GIUGLIANO

Act more like a traditional bank, and less like a tech start-up. That’s what some marketplace lenders are trying to do to appease some critical investors. Acting like a traditional bank, however, could be a slippery slope. Operational changes may be enticing to some investors, but they threaten the very foundation of marketplace lending, potentially shutting out the segment of the population marketplace lending was meant to serve. Evolution was expected.  Regression was not. The way forward ...

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Auto Loans

Autocorrect? Lenders Pull Back from Subprime Auto Lending, Others Follow Riskier Course

Jun 16, 2017 | By JOSEPH CIOFFI

A Federal Reserve blog post in November 2016 attracted widespread attention to subprime auto lending and the similarities easily drawn, at least on the surface, to subprime mortgage lending leading up to the financial crisis of 2008.  The warnings of commentators who have sounded the alarm in the past six months have been rebutted at every turn, due mainly to the small footprint of the auto loan and related ABS market relative to subprime mortgages and RMBS at their peak.  However, crises come ...

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Pace Financing

Carson Comments Leave PACE Twisting in Wind

May 31, 2017 | By JOSEPH CIOFFI

Recent comments from HUD Secretary Ben Carson struck a sour note for supporters of the PACE loan program, through which thousands of homeowners and businesses have made energy-efficient improvements to their properties. Just last year, in an effort to boost the program, the FHA, under the Obama Administration, said it would back mortgages on homes encumbered by PACE loans. But earlier this month, Carson said that the new administration is “very, very amenable to adjusting that policy.” The ...

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Student Loans

A New Approach to Discharging Student Loan Debt?

May 31, 2017 | By JOSEPH CIOFFI

Student loans carry a reputation for inevitability surpassed only by death and taxes. With good reason, too. In order to discharge a student loan in bankruptcy—the only way to shake it for good—a borrower in bankruptcy must show that being required to repay the loan would cause them “undue hardship.” Making that showing has proven difficult indeed. In applying the “undue hardship” standard, most courts use the Brunner test, which requires petitioners to prove that they: (i) cannot maintain a ...

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Marketplace Lending

OCC Action Touches Off Fintech Turf War

May 31, 2017 | By JOSEPH CIOFFI

Beneath all the excitement surrounding the fast-growing “fintech” industry has been a more practical question: who, exactly, is going to regulate this new breed of enterprise? The U.S. Office of the Comptroller of the Currency offered one answer recently, announcing its intention to grant national bank charters to fintech companies. The OCC action would allow companies that gain charters to operate nationwide. Equally significant, it would result in state-level preemption. Chartered fintech ...

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Marketplace Lending

Law360.com, “Madden Creates More Uncertainty for Marketplace Lenders”

Mar 23, 2017 | By JOSEPH CIOFFI AND MASSIMO GIUGLIANO

In "Madden Creates More Uncertainty for Marketplace Lenders,"" a Law360 article, Joseph Cioffi and Massimo Giugliano discuss the ongoing case of Madden v. Midland Funding and its impact on the marketplace lending. The authors explain the significance of the initial decision by the Second Circuit in 2015, which created substantial risk for marketplace lenders that rely on a partner bank origination model to avoid state usury caps, and analyze the potential impact of a subsequent decision ...

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Pace Financing

ValueWalk, “Trouble With Green Energy PACE Loans”

Jan 19, 2017 | By JOSEPH CIOFFI

In this ValueWalk article, Joseph Cioffi offers insight into concerns surrounding the Property Assessed Clean Energy program (PACE), including the adequacy of disclosures made at the time a PACE-funded project is sold to a homeowner as a means of financing energy efficient home improvements through a tax assessment on the property.

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Mortgage Loans and MBS

Banking Exchange, “Tick, Tick, Tick for DOJ. With Time Running Out, Feds Ramp Up Mortgage Litigation”

Jan 07, 2017 | By JOSEPH CIOFFI

This Banking Exchange article, prompted by the DOJ’s recent lawsuit against Barclays, discusses the longer statute of limitations available to the government, relative to private plaintiffs, to sue participants in the subprime mortgage securitization process. As Joseph states, for the immediate future “the 10-year statute of limitations remains an arrow in the government’s quiver.” Click here to view the full article.

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Marketplace Lending

Structured Credit Investor, “Next Steps: Madden Ruling Created Landscape of Uncertainty”

Jul 12, 2016 | By JOSEPH CIOFFI

In this Structured Credit Investor article concerning the potential effects of Madden v. Midland Funding on marketplace lending platforms, Joseph provides suggestions for platforms seeking to adapt to the ruling and the potential for the ruling to shape the industry. Joseph notes, “if partner banks start to get more involved in the origination process so as to avoid the problems of Madden, these banks may start to question why they need the platforms at all and there is the potential that they ...

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