Are trends in mortgage subprime lending influencing

In December 2006, the Center for Responsible Lending reported that
one in five subprime mortgages initiated in 2005 and 2006 will end
up in foreclosure, a figure that is double the foreclosure rate of five

years earlier.1 7
All segments of the mortgage industry have seen increasing defaults due
to adjustable-rate mortgage resets and declining home prices. Subprime
lenders in the auto finance industry are wondering what, if any, impact
this trend will have on them.
Auto lenders can take comfort in the fact that the differences in the
subprime mortgage and subprime auto loan markets are greater than
their similarities:
Subprime auto loans typically don't have adjustable rates
that soar at the end of a teaser term.
The average subprime auto loan has a much shorter term
and loan amount than the average subprime mortgage.
Auto lenders, remembering the consequences of loosened
standards in the early '90s, have been more diligent than
mortgage lenders.
While used car sales are off recently, high demand for used
cars is supporting subprime lending.
Some choose to keep the car, not the house. Recently, there has been
some surprising evidence that many holders of Adjustable Rate
Mortgages (or ARMs) are making payments on their auto loans while
defaulting on their mortgages. The reasoning is that some borrowers may
feel hopelessly trapped in reset ARMs, so they quit paying to free up
funds for their other obligations. In the subprime auto market, the
potential effect of this emerging trend is limited because about two-thirds

of subprime borrowers are renters.18