A decade-long boom in auto lending threatens to unravel as payment deferrals end while unemployment remains high and stimulus measures fade, the Wall Street Journal reported. Borrowing for cars, trucks and SUVs rose more than 90 percent in the past decade, faster than all other types of borrowing except student loans, according to the Federal Reserve Bank of New York. Going into the downturn, auto debt outstanding was at a record $1.35 trillion and loan balances had never been higher. There were signs of trouble even before the crisis hit. According to the New York Fed, 5.1 percent of car loan balances were 90 or more days delinquent in the first quarter, only slightly below the peak of 5.3 percent in the financial crisis. The lending boom was fueled by banks and investors who believed auto loans were a safe way to get extra yield while interest rates were low. They were relying on lessons learned in the financial crisis when consumers defaulted on their mortgages but kept making car payments. The risk is that the excesses caused by a flood of investor cash into the mortgages could show up in auto lending. If defaults rise, it will test whether lenders, and the investors that enthusiastically backed the loans, can work out deals that prevent borrowers from losing their wheels. The stress will show up first in subprime loans, made to consumers with low credit scores. About a quarter of loans made to these borrowers were packaged and sold to investors last year under contracts that limit the changes that can be made, according to S&P Global Inc.
