As one the leading experts in asset backed securities analysis took a stab at deflating the “subprime bubble” talk, the Consumer Financial Protection Bureau official whose jurisdiction is the auto finance market answered pre-submitted questions for nearly an hour on Thursday during the National Auto Finance Association’s 19th annual Non-Prime Auto Financing Conference.

The CFPB barred media outlets from attending this conference session, so SubPrime Auto Finance News followed up with NAF Association executive director Jack Tracey to obtain a recap of what transpired. The session included Jeffrey Langer, assistant director, office of installment and liquidity lending markets at the CFPB, as well as Hudson Cook partner Joel Winston, who spent decades of his professional career at the Federal Trade Commission.

“I think it went well,” Tracey said of the session that attracted most, if not all, of the more than 400 conference attendees who gathered in the largest meeting space available at the Dallas/Plano Marriott at Legacy Town Center in Plano, Texas.

“I think there are limitations on what can be said. But in the framework of what he could say, he was forthcoming,” Tracey continued. “During the question-and-answer period … we touched on the important things, disparate impact, size of finance company portfolios and compliance management systems.”

Winston posed the questions NAF Association members submitted in advance. Langer also took part in two other closed-door, informal gatherings with a select group of finance company executives later on Thursday.

“There’s always the wish that (Langer) was able to be even more forthcoming,” Tracey said. “But as he explained it, as long as they’re working on (policy) and it’s in the developmental stage, it’s improper to put it out there because it can cloud the marketplace.

“I’m personally respectful for what he’s trying to do. I’m particularly grateful that this is the fourth year they’ve come. They’re wanting to know our industry, and they’re using the NAF Association as the way to do it,” Tracey went on to say.

Langer conducted similar sessions during the NAF Association’s annual gathering last year. Before leaving the bureau for a partner position with Hudson Cook, Rick Hackett also appeared twice at this conference.

“It’s very important for the NAF Association to have relationship with other industry associations as well as an amicable relationship with the regulators,” Tracey said. “The flow of information and the opportunities for discussion are what an association has to do.”

Return of Bubble Talk

As she has done for nearly every NAF Association conference, Standard & Poor's senior director Amy Martin gave nearly a 30-minute presentation about how the ABS market is performing. Soon after Martin finished her commentary on Thursday, she took questions, and it didn’t take longer for the discussion to return to a subject that might make subprime finance company executives grind their teeth.

Martin responded to an inquiry about how the industry can diffuse discussions about finance companies inflating a “subprime bubble” similar to what happened in the mortgage space.

“We don’t think there is a bubble in subprime autos because people don’t speculate with their cars. They don’t buy a car thinking it’s going to appreciate in value,” Martin said.

“There is a real need for this segment to have basic transportation to get to and from work, to the grocery store and take their kids to school. Many of them are a one-car family. They need the car,” she continued.

Martin referenced back to her presentation to show how the subprime ABS market nearly evaporated during the low point of the Great Recession back in 2009.

“And because the ABS market wasn’t open for business many subprime auto finance companies could not obtain the financing with which to make subprime loans,” Martin said. “There was a scarcity of subprime lending. So yes, there’s been a lot of growth. But maybe we’ve gotten back only to where we were before the crisis.”

Where Martin sees records being set in the auto finance space stems from the opposite side of the credit spectrum. She pointed to the volume of super prime consumers taking out vehicle installment contracts as what could be making headlines.

“I don’t think that there’s a (subprime) bubble. But I do think we need to watch the rise in delinquencies and losses,” Martin said.

“We have to be disciplined and identify to make sure the credit enhancement is commiserate with the ratings and loss expectations,” she continued. “Just because collateral losses are going up, it doesn’t mean the companies can’t be profitable. They just need to price the risk appropriately.”