JUST IN:
Wells Fargo laying off all junior Auto underwriting staff.
As of 4/27 any auto loans greater than 110% loan-to-value and 15% payment-to-income will be declined.
8 replies (most recent on top)
LTV is the Loan to Value ratio of the vehicle. PTI is the payment to income ratio. Portfolios always start to deteriorate at 14% or higher based on my experience in auto finance. Some banks cap the PTI at 15%, some higher, but the collection rates start to erode at 14%. WF knows this and is trying to mitigate the future losses by lowering their number to 15%.
Ok, so I agree with a lot of what you say and you did do a good job of explaining the LTV/PTI/Neg Equity/TTL, etc. I also attest many car buyers are extremely Uninformed about many related issues. But you and I both know not everyone can pay cash for a car. I work in this industry. I see people every day getting into cars they shouldn't be getting into. Our Job is to follow the current underwriting guidelines even if we question the intelligence of whoever thought this was a good idea. I feel your Pain. But, people need cars and that's why we finance them. There are plenty recent college Grads that have strong co signer parents and very large down payments that need to establish credit. Often quickly paying the loan off in a year or 2. You get my drift. People do need financing at times and are not mentally delusional in doing so. I did this for my daughter to establish her credit and I t was the best thing I could have done for her when just starting out and teach her about good credit rating and paying bills on time. She is how grown on her own and just as financing responsible as I am.
@tnx should not wk for a bank
@cdk+1mctu5Uf nice job breaking it down...thank you!
LTV - loan to value. Calculated by dividing the total amount financed by the appraised value of the collateral.
Say you want to buy a new car with a $50,000 sales price. Your trade in is only worth $30,000 but you owe $33,000. You would have to pay $50,000 + sales tax + all applicable title/license/dealer fees + $3,000 negative equity to buy out your trade in. The total amount financed would not be able to exceed 110% of the value of the collateral or $55,000 assuming the value is calculated as a the sales price, so this will lead to more people having to put up higher down payments.
PTI - payment to income. Calculated by dividing the fully indexed, fully amortized monthly qualifying loan payment by total monthly income from all sources.
This is just limiting the amount of loan payment they will give based on your income. For example, your salary is $50,000 per year which equates to $4,166.67/month. Max auto payment approved based on this income would be $625/month at 15% payment to income ratio. This is going to push people into longer loan terms (more interest for the bank) in order to stay within threshold.
Don't forget there are also additional requirements including debt to income, and credit score, credit history, etc.
If you're going to buy a car, pay cash. If you can't afford it in cash, you're broke. No matter how much money you have in the bank, no matter how financially savvy you think you are, no matter what type of mental delusion you're convincing yourself of how much you deserve this fancy new electric, hybrid, sustainable, performance, black series, type R, Prestige trim level, platinum, AWD car. Only a crazy person would take a loan these days at 6%+ interest on a hugely depreciating asset.
Just call me flash and dash
Please provide examples/ describe better what 110% LTV and 15% paymwnt to income mean
Why does Auto continue to exist in any form?
What's going to happen to Auto when the chip shortage isn't an issue? Back to relying 100% on legacy car dealerships to send business our way?
Stagecoach!