Subprime Defaults May Spread to Automobile Loan Bonds, S&P Says (Mark Pittman)

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Bonds backed by automobile loans may be hurt by rising subprime mortgage defaults as people with poor credit struggle with their household debt, according to Standard & Poor's.

By Mark Pittman

March 26 (Bloomberg) -- Bonds backed by automobile loans may be hurt by rising subprime mortgage defaults as people with poor credit struggle with their household debt, according to Standard & Poor's.

Capital One Financial Corp., Wachovia Corp., Wells Fargo & Co., and other lenders have lent more funds to people with bad credit in the past few years to sustain growth, S&P said today in a report by analysts led by Mark Risi. The loans are also for longer terms, increasing the probability of default, the analysts said. About 68 percent of 2006 subprime auto loans were due in five years or more, Risi said.

``There could be some fallout from subprime in auto loans,'' Risi said in an interview. ``We don't have much data yet. We're still in collection mode. It's probably going to be hard to say for a while, but there have been some material differences'' in the most recent subprime auto loan securities, he said.

The worst housing slump in 10 years is pushing down home prices, hampering owners from refinancing. Borrowers with weak or incomplete credit are also vulnerable to the resetting of mortgages at more than the teaser rates they initially paid.