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Repackaged auto loans seem like an unlikely place for mauled credit investors to hide, but they are outperforming and issuance is at a multi-year high, Bloomberg News reported. Corporations have sold more than $58 billion of asset-backed securities supported by auto loans this year, about 20% more than at this point in 2021. Santander Consumer and First Help Financial both offered deals this week, while Carvana Co. — the online used car seller whose shares and junk bonds plunged — plans to sell $605 million of the debt next week. “Auto ABS is one of the safe havens in structured credit now,” said Tracy Chen, portfolio manager at Brandywine Global Investment. Asset-backed securities can get clobbered during an economic downturn, as consumers get laid off and default on their debt. During the financial crisis, the securities got hit particularly hard as the housing bubble popped and bonds tied to debt including second mortgages and home equity loans headed south. But auto loan debt is ultimately backed by cars, including loans made to subprime borrowers. Prices on both new and used vehicles are up with prices on both new and used vehicles up 14% over the last year thanks in part to shortages of chips, according to U.S. consumer price index data and the Manheim index. Used car prices have been falling in recent months, but new vehicle prices are still rising.

President Joe Biden is agonizing over ordering a sweeping cancellation of student loan debt, despite pressure from Democrats — including Vice President Kamala Harris — eager for a political win before midterm elections, Bloomberg News reported. While he said last month that he’s considering “some debt reduction,” Biden has not made up his mind about many details of the plan, including how much debt to forgive per borrower, the people said. And though White House officials have debated the contours of a forgiveness program internally for more than a year, there is no real consensus on the best path forward. White House Chief of Staff Ron Klain and a deputy director of the National Economic Council, Bharat Ramamurti, are among the aides urging Biden to announce some form of student loan forgiveness. The White House’s hesitance on the issue represents the latest fracture within the Democratic party, which Biden has failed to unite around his ambitious economic agenda. But this time it’s the Democratic rank-and-file who haven’t yet persuaded the president to use his power for broad loan relief.

A federal appeals court ruled on Wednesday that payments individuals owe to the Internal Revenue Service for failing to obtain health insurance under the Affordable Care Act should be given priority in bankruptcy, Reuters reported. The U.S. Court of Appeals for the Third Circuit affirmed a lower court's ruling that payments owed to the IRS are entitled to be paid off before other debts in a Chapter 13 bankruptcy because they qualify as taxes. The decision came in the case of a Pennsylvania couple who filed for bankruptcy in 2019 owing $927 to the IRS for failing to obtain health insurance as required by the ACA. The individual mandate of the landmark healthcare law had required Americans to obtain health insurance or make a so-called "shared responsibility payment," but that requirement was eliminated for individuals in late 2018. Wednesday's decision was the first precedential opinion on the issue from an appeals court, but mirrors findings from a similar ruling from the Bankruptcy Appellate Panel of the 6th Circuit in March.

The Biden administration is reportedly considering expanding its efforts at targeted student debt forgiveness into a broader policy whereby “at least” $10,000 (some have advocated for up to $50,000) in student loans per borrower, possibly subject to an annual income cap, would be eligible for cancellation. There is a rough consensus that rising levels of student-loan debt are a problem, and proponents of debt relief note the aggregate amount outstanding has increased by roughly two-thirds over the past 10 years to a total of some $1.7 trillion. Largely overlooked in the debate are changes made to the U.S. Bankruptcy Code in 2005, which materially increased the difficulty of discharging student loans in bankruptcy, according to a commentary by Richard J. Shinder of Theatine Partners in today’s Wall Street Journal. The “undue hardship” standards that apply to the cancelation of student loan indebtedness create a high hurdle for discharge, as borrowers must meet various tests adopted by the courts. The difficulty in satisfying these requirements, along with the costs associated with filing for bankruptcy, results in little student debt being relieved in this manner. Unfortunately, the 2005 changes to the Bankruptcy Code, combined with the 2010 federalization of the student-loan market, have placed what is fundamentally a commercial matter — the repayment of financial obligations — squarely within the ambit of public policy. Initially as guarantor and now as lender to student borrowers, the federal government has a direct seat at the table. Having largely prohibited the resolution of student loans in bankruptcy subjects its ultimate disposition to political caprice. Read more. (Subscription required.) 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

U.S. household debt rose to a record $15.84 trillion in the first quarter driven almost entirely by a $250 billion increase in home loan balances, but the rise was the smallest in a year and new mortgage and auto loan originations declined for a third straight quarter, Reuters reported. The Federal Reserve Bank of New York's quarterly household debt report released Tuesday showed mortgage debt climbed to $11.18 trillion at the end of March, and now accounts for 71% of total household debt, the highest share in roughly a decade. But new loan originations — both for home purchases and refinancing of existing mortgages — fell to $859 billion, the lowest since the second quarter of 2020. They remain, however, more than $100 billion above the pre-pandemic level of the fourth quarter of 2019. Still, the 17% drop was the largest in five years and was largely the product of a fall-off in demand for refinancings with borrowing costs climbing rapidly during the quarter as the Fed began hiking interest rates to combat inflation running at four-decade highs.

The mortgage refinancing boom is winding down and household debt levels are creeping up as consumers edge past the worst of the pandemic’s economic shock, the New York Times reported. Mortgage originations dropped sharply in the first quarter of 2022 compared with their 2021 peak, according to a quarterly report on household debt that the Federal Reserve Bank of New York released Tuesday. Last year’s spike was fueled by refinancings from homeowners chasing exceptionally low rates; as rates have risen, demand has cooled. But the overall amount of mortgage debt for new purchases is generally rising, with soaring home prices forcing buyers to borrow more for their homes.

Consumer debt levels for March 2022 climbed by $52.4 billion, an annual increase of 14%, seasonally adjusted, according to Federal Reserve data released Friday, CNN reported. Revolving credit, which includes credit cards, surged by 21.4%. Despite robust wage growth — over the past 12 months, average hourly earnings have gone up by 5.5% — consumers are seeing those gains eroded by the highest inflation in 40 years. The cost of food is up nearly 9% over the last year, and a gallon of gas now averages $4.279 at the pump. The Federal Reserve on Wednesday announced a half-point rate hike as part of a series of actions intended to address rampant inflation. That means interest rates will rise on everything from credit cards to car loans, pressuring household budgets even further. "All of this newfound debt that Americans have is only going to get more and more expensive in the coming months," said Matt Schulz, chief credit analyst for Lending Tree. The rise in debt levels is likely driven by two factors, Schulz said. First, there is some pent-up spending after lockdown. Then there are other cash-strapped individuals who are turning to credit cards to pay for basic needs that have grown more expensive, he said.

An Illinois appellate court ruled Friday that the city of Chicago unlawfully overcharged some residents who were ticketed for failing to have a vehicle sticker, which one car owner said led him to declare bankruptcy after he racked up thousands of dollars in fines, the Chicago Tribune reported. Attorney Jacie Zolna, who represents three residents in a lawsuit that led to the ruling, said the decision sets the stage for a possible class-action lawsuit that could see hundreds of millions of dollars in ticket debt come under scrutiny. Vehicle stickers are at the heart of the case. The city charges $95 annually for a passenger car sticker, with the money going toward road maintenance. Failing to display a sticker can mean a ticket. Rodney Shelton of West Humboldt Park said that a car he bought couldn’t pass the emissions test, and without that he couldn’t buy a city vehicle sticker. Even though he parked the car in a private lot, he said, the city ticketed him dozens of times for not having the sticker until the fees and penalties reached about $20,000. He had to declare bankruptcy before he could start paying it back, he said. Mayor Lori Lightfoot campaigned against the city’s system of fines and fees, frequently criticizing the city for balancing its budget on the backs of taxpayers by exacting regressive penalties through tickets. Within months of taking office in 2019, the mayor shepherded through the City Council a series of reforms to the city’s fines-and-fees system that ended the practice of suspending the driver’s licenses of people who haven’t paid parking tickets, reduced vehicle sticker penalties and created a six-month payment plan to give those with ticket debt more time to pay.