Taxpayers enable sub-prime car loans

[vinoveri]

If we can do it for cars, how long until Fannie and Freddie start to lower their underwriting standards ?(like to where they were 2 years ago)

Dec. 30 (Bloomberg) -- GMAC LLC, bolstered by a $6 billion federal bailout, resumed lending to General Motors Corp. customers with lower credit scores as the U.S. stepped up efforts to keep the automaker in business. The Treasury said yesterday it will take a $5 billion stake in Detroit-based GMAC, the financing arm of GM, and lend $1 billion to the automaker that will be invested in GMAC to boost its capital. Within hours, GM was offering five-year, no- interest loans to halt this year’s 22 percent slide in sales, which dealers have blamed on a lack of financing for customers.
...
GMAC will now lend to vehicle buyers with credit scores of 621 or higher, compared with a previous standard of at least 700, according to a company statement. The higher threshold had excluded about 42 percent of U.S. consumers.
Helping GM
The company said it won’t finance “higher-risk transactions,” instead concentrating on prime customers who are more likely to repay using “responsible credit standards.” (ha-ha-ha-ha-ha)
The relaxed policy “will allow us to return to more normal levels of financing volume, and should help in efforts to stabilize the U.S. auto industry,” GMAC President Bill Muir said in today’s statement.
http://www.bloomberg.com/apps/newspid=20601087&sid=aUlUYbxht7PI&refer=home

[strittmatter]

Re: Taxpayers enable sub-prime car loans

Un f'n believable (well not really).

A "controlled crash" effort - I was able to go along with. But to allow the perpetuation of this same self serving B.S. at this stage?

Speechless.

[jtabeb]

Re: Taxpayers enable sub-prime car loans

Un f'n believable (well not really).

A "controlled crash" effort - I was able to go along with. But to allow the perpetuation of this same self serving B.S. at this stage?

Speechless.

Looks like I'm buyin a VETTE!

[GRG55]

Re: Taxpayers enable sub-prime car loans

Un f'n believable (well not really).

A "controlled crash" effort - I was able to go along with. But to allow the perpetuation of this same self serving B.S. at this stage?

Speechless.

Here's what's Un f'n believable [highlights mine]:


From the Dec 24 Bloomberg article announcing the Federal Reserve Board's approval for GMAC to become a bank holding company:

...The Fed is using emergency powers to grant Detroit-based GMAC’s request because of the “unusual and exigent circumstances affecting the financial markets,” according to a statement from the central bank today. To comply with rules about who can own a bank, GMAC’s majority owner Cerberus Capital Management LP agreed to distribute its stake to its investors and minority owner GM will cede all control...

...GM owned all of GMAC until it sold a 51 percent stake in GMAC in 2006 to a group led by Cerberus, the New York-based private equity firm. As part of today’s agreement, GM will reduce its ownership in GMAC to less than 10 percent and transfer what remains to an independent trust, which will dispose of the stakes within three years. ...

From yesterday's Bloomberg announcing the Treasury Dept. deal with GMAC and GM:

...The Treasury will purchase a $5 billion stake in GMAC and lend $1 billion to GM...

...GM’s $1 billion loan from the Treasury would be used to support GMAC’s rights offering...

Nothing better than one government agency demanding divestment while another is lending taxpayer funds so they can buy more...:rolleyes:

And then this little tid-bit showed up at the end:

...GM, which sold 51 percent of GMAC in 2006 to a group led by private equity firm Cerberus Capital Management LP, is seeking a permanent federal bailout to avert bankruptcy...

What exactly is a "permanent" federal bailout?

A bailout that never ends...

[vinoveri]

Re: Taxpayers enable sub-prime car loans

What exactly is a "permanent" federal bailout?

A bailout that never ends...

I suppose you pegged it ... This latest story (below) seems to imply the door is opening for the gov to prop up anything for whatever reasons they see fit ...

Dec. 31 (Bloomberg) -- The U.S. Treasury drafted broad guidelines for aid to the auto industry that would let officials provide funds to any company they deem important to making or financing cars.
With today’s announcement, the Treasury is giving itself room to provide money from the Troubled Asset Relief Program beyond loans already committed to General Motors Corp., GMAC LLC and Chrysler LLC.
...
...
Treasury officials “much prefer discretion, and so they would view the statement as being constructively ambiguous,” Reinhart said. “It’s appropriate that they end the year the way they spent most of it -- that is, adding uncertainty into an environment in which there’s a lot of uncertainty.” :p
...
...
‘Case-by-Case’
“Treasury will determine the form, terms and conditions of any investment made pursuant to this program on a case-by-case basis,” the Treasury said in the new guidelines. “Treasury may consider, among other things, the importance of the institution to production by, or financing of, the American automotive industry.”
The government will weigh “whether a major disruption of the institution’s operations would likely have a materially adverse effect on employment and thereby produce negative spillover effects on economic performance” or on credit markets, the Treasury said.
This week’s funding agreement between the Treasury and GMAC opened a new rescue program for the auto industry as part of the TARP. Treasury said then that the GMAC agreement was “part of a broader program to assist the domestic automotive industry in becoming financially viable.” A Treasury official said there’s no cap or deadline for aid to the auto industry under the TARP.
The bailout was originally designed to buy assets from banks and has instead become a fund for Treasury to prop up lenders, insurers, carmakers and now auto-finance companies.
“We would not be surprised to see additional government funds to GM to support a Delphi solution,” JPMorgan Chase & Co. analyst Himanshu Patel said in a report yesterday. http://www.bloomberg.com/apps/newspi...eno&refer=home

[mikedev10]

Re: Taxpayers enable sub-prime car loans

http://www.ritholtz.com/blog/2008/12/gmac-0-subprime/