While there’s some turmoil in the auto loan market - delinquencies are up, more people are losing their cars to repossession and inquiries have begun concerning the subprime auto market’s lending tendencies - Santander Consumer USA still had few problems finding buyers last week for a bond deal consisting of auto loans to credit-troubled borrowers. 

Santander Consumer is among the lenders recently receiving subpoenas from federal and state authorities requesting information about its securitizations. Parent company Santander Holdings USA also has struggled with regulatory issues. As part of the banking stress test, the Fed analyzed the auto lender, as well as Santander’s U.S. retail banking operations.

The Fed analysis resulted - a day before the bond deal - in a rejection of Santander Holdings' larger capital plan but it’s not clear what role, if any, Santander Consumer’s auto business played in that decision. 

Many loans bundled into the $712 million bond deal went to borrowers with much lower credit scores than in many of Santander’s past bond deals. Moody’s Investors Service expects losses as high as 27% on the bond, much larger than the 17% loss the ratings firm had projected on a bond that Santander sold last year. Risks in the market are likely soaring and some lenders are pulling back. But Santander’s latest deal indicates Wall Street’s thirst for subprime auto loans remains healthy.

Overall, auto loans to subprime borrowers, typically people with credit scores at or below 640, have more than doubled since the financial crisis.

In rejecting the capital plan, the Fed found Santander Holdings had plenty of capital to weather severe economic woes but failed it overall, citing "critical deficiencies" in areas including risk identification and risk management in the bank’s capital planning. 

Santander Consumer USA, which was started as a regional subprime lender before most of the company was acquired by Banco Santander in 2006, has developed a reputation for deftly managing the risks of lending to troubled borrowers, according to the New York Times.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.