Joe Cioffi – Subprime Suprise [VALUETALKS]


Hello Valuewalk listeners,

Today is a very special episode recorded live with Joe Cioffi. We discuss his article “Subprime Surprise? Subprime Auto Overcollateralization May Not Be Overly Protective“.

The article concluded as follows

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Although investors have demanded credit enhancements that correlate to pool risk, they should recognize that relative to subprime RMBS, auto ABS O/C rates are not exceedingly high given the equity cushion that was assumed to have existed in homes backing RMBS. Lenders and sponsors should be wary of the impact accelerated depreciation and easier auto credit may have on loan performance and assess their potential exposure should market, economic, political or even climate-related events create a shock to consumers or the financial system, in turn causing a spike in defaults. A combination of loose lending by some and rising negative equity creates the prospect that loss allocation battles are on the horizon. Motivation by trustees and investors to act quicker than they did with subprime RMBS claims based on the consequences of inaction in the RMBS context and favorable law may be indicators that such battles could be around the corner.


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