‘Deep subprime’ auto loans on the rise

About a third of the risky car loans that are bundled into bonds are considered “deep subprime,” a level that has surged since 2010 and is translating to higher delinquencies on the loans, according to Morgan Stanley.

Consumers are falling behind on most subprime car loans, but deep subprime borrowers have deteriorated fastest, the analysts said. Sixty-day delinquencies for bonds backed by these loans have risen three percentage points since 2012, compared with 0.89 percentage points on all other subprime auto securities, Morgan Stanley’s Vishwanath Tirupattur, James Egan and Jeen Ng said in a report released Friday.

“The securitization market has become more heavily weighted toward issuers that we would consider deep subprime,” the strategists wrote. “Auto loan fundamental performance, especially within ABS pools, continues to deteriorate.”

The percentage of subprime auto-loan securitizations considered deep subprime has risen to 32.5 percent from 5.1 percent since 2010, Morgan Stanley said. The researchers define deep subprime as lenders with consumer credit grades known as FICO scores below 550.

As Wall Street banks have found it tougher to profit under new regulatory regimes born out of the last subprime crisis, they have become more willing to underwrite riskier auto-loan, asset-backed security sales.

— Bloomberg News

Wells Fargo fails lending test

A federal bank regulator has flunked Wells Fargo on a national scorecard for community lending, the bank said Tuesday, as it tries to repair its reputation after a phony-accounts scandal.

The Office of the Comptroller of the Currency deemed Wells Fargo a bank that “needs to improve” under the Community Reinvestment Act, a law meant to promote lending to poor neighborhoods, the bank said.

Wells Fargo once boasted an “outstanding” score on CRA. The new ranking gives regulators greater say over matters such as branch openings.

In September, Wells Fargo admitted that employees wrongly created as many as 2 million accounts without customer approval.

The OCC gave Wells Fargo high marks for all-around service, but the past scandal led to the downgrade.

“We are committed to addressing the OCC’s concerns,” Tim Sloan, Wells chief executive, said in a statement.

— Reuters

Also in Business

U.S. consumer confidence climbed to its highest level in more than 16 years last month. The Conference Board said Tuesday that its consumer confidence index rose to 125.6 in March from 116.1 in February, the best reading since December 2000. The index measures both consumers’ assessment of current conditions and their expectations for the future. Both improved this month.

Amazon is testing a grocery pickup service in Seattle. The AmazonFresh Pickup service is open to only Amazon employees. Eventually, however, members of Amazon’s Prime loyalty program will be able to order groceries online and drive to a pickup location, where crews will deliver items to the car. Amazon says orders will be ready in as little as 15 minutes after being placed. Amazon chief executive Jeffrey P. Bezos is the owner of The Washington Post.

The U.S. goods trade deficit narrowed sharply in February, and inventories increased, the government reported Tuesday. The Commerce Department said in its advance economic indicators report that the goods deficit fell 5.9 percent to $64.8 billion last month as a decline in imports outpaced a drop in exports. The government also said inventories at retailers rose 0.4 percent last month to $616.1 billion, and stocks at wholesalers rose 0.4 percent to $594.1 billion.

Chipotle is now selling flour tortillas made with only flour, water, canola oil, salt and yeast, the company said Tuesday. The burrito wrappers used to have dough conditioners and preservatives. The move marks the latest push by the chain to revamp its ingredients since food-poisoning incidents sent sales plunging and hurt its reputation. Chipotle’s menu now contains just 51 ingredients, including some organic produce and meat raised without hormones. The chain also said none of its ingredients are genetically modified.

From news reports

Coming today

10 a.m.: National Association of Realtors releases pending home sales index for February.