Surging Fraud In Auto Loans Looking Eerily Reminiscent Of Mortgage Bubble

So what do you do when you've pulled forward every single car sale you possibly can courtesy of low interest rates, lengthening terms and generally loosening credit standards targeting incremental subprime buyers? Well, you take a play out of the 2008 mortgage crisis playbook and just start submitting fraudulent loan applications, of course.

And, at least according to a new study from Point predictive, that is exactly what is starting to happen. Per Bloomberg:

Borrower fraud in U.S. auto loans is surging, and may approach levels seen in mortgages during last decade’s housing bubble, according to a startup firm that helps lenders sniff out bogus borrowers.

As many as 1 percent of U.S. car loan applications include some type of material misrepresentation, executives at data analytics firm Point Predictive estimated based on reports from banks, finance companies and others. Lenders’ losses from deception may double this year to $6 billion from 2015, the firm forecast.

Those fraud rates are coming closer to the over-1-percent level for mortgages in 2009, when the financial crisis was boiling and more lenders started reporting incidents to one another, Frank McKenna, chief fraud strategist at the firm, said in an interview. While those losses will sting lenders, the impact on the overall economy will likely be much more muted than with the housing crisis, just because there’s less car debt outstanding.



Even so, “We see an extraordinary amount of parallels between the auto and mortgage industries, in terms of the rising levels of hidden fraud,” McKenna said. For home loans, it’s hard to know how widespread the deception was before 2009, because lenders often didn’t report information to one another and may not have even investigated incidents of probable lying much on their own, McKenna said.

Shocking, and we thought this exponential auto loan growth was all legit...

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