WASHINGTON—A new report from the Office of the Comptroller of the Currency (OCC) indicates that banks are taking on more risk as competition for auto loans increases.
CUToday.info has extensively reported that all lenders have been taking on more risk to keep the pipeline flowing, reaching down deeper into credit scores and extending terms to record levels to keep payments affordable.
The OCC report indicates that the risk banks have been taking on has been happening for a number of quarters. The report, the Semiannual Risk Perspective for Fall 2016, indicates the risk is taking place in both direct and indirect lending.
“The OCC wrote that underwriting standards for direct and indirect auto loans for some lenders were less stringent due to increased competition for auto loans,” said Keith Leggett, former senior vice president and senior economist at the ABA and author of the Credit Union Watch blog, in his analysis.
In addition, the OCC commented that they are seeing increased risk layering at lenders as they grant loans with longer terms combined with higher advance rates resulting in higher loan-to-value ratios.
“Moreover, lenders are seeing higher loss severities (lower recoveries) associated with charged off auto loans,” said Leggett.