Podcast 247: 7 Million Americans Behind on Auto Loans


We also discuss recent news coming out of Detroit, Glendale, and the Twin Cities involving “Ban the Box”, relocation fees, and suing the city.

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Resources Mentioned in this Episode

7 Million Americans are over 90 Days Past Due on Auto Loans:

Glendale requiring landlords to pay relocations fees when raising the rent:

Landlord Sue the city of St. Paul:

Detroit “bans the box”

Show Transcription:

00:00 Hey everybody. Welcome back to another episode of rentprep for landlords. I am your host Eric Worral. And on this episode we’re going to be talking about some recent news stories and we’re going to spend some time on a really interesting one. And that came from the Washington Post about a record 7 million Americans that are in 90 days or more behind on their auto loan payments. That’s a pretty scary statistic. So we’re going to dive into that, but we also have some other recent news stories from the last week. I’m gonna be sharing with you that affected landlords, property managers, and real estate investors. So let’s get to that right after this.

00:35 1,2,3,4 ya ya ya…. Welcome to the RentPrep for landlords podcast. And now your host, Steven White and Eric Worral.

00:42 So we’ll get into that story that I mentioned before, the intro there about the auto loan issues that we have going on. Uh, but I’ve got a few local stories and I’m gonna share with you, uh, that may or may not affect you, but it’s always a good reminder to make sure you’re staying up on your local laws because things are always changing.

00:59 So out in Los Angeles. Um, there was a story that came from Curbed La, curb.com from Elijah Chiland. Ah, this was on February 15th, that in Glendale, which is a city in Los Angeles County, uh, in California, uh, it says that close to two thirds of residents are renters and landlords will soon face city requirements aimed at discouraging steep rent hikes. So after temporarily freezing rank creases, about 5% in November, the Glendale City Council voted three to zero to approve an ordinance Tuesday requiring most apartment owners to pay relocation assistance fees to tenants if they plan to raise rents more than 7%.

01:40 So basically, if you’re a landlord that raised his rent more than 7%, if that tenant moves out, you have to pay for their relocation fees. Uh, again, this is kind of a weird one. I’m sure most of our audience doesn’t love hearing that. at least they do not have any kind of stipulations on how much you can raise rent. That’s why they’re saying it’s not rent control. Uh, but yeah, it’s just a, it’s just a weird story. Uh, and we would ordinance, in my opinion as far as having to pay for somebody to move to the new place. Um, just because you raised rent, uh, seven or 8%. Um, depending on the situation, I wonder how this would play in if you were a landlord that picked up a new property and you knew that that property, the rents were extremely low, maybe that landlord undervalued that property quite a bit. Like how does that work if you put in a ton of money into this piece of property and now you can’t move those tenants out unless you want to pay for the relocation fees. So, and are those relocation fees just in the same town? So, uh, that’s kind of the issue that I have with a lot of these types of ordinances. They don’t think about the entire picture. Uh, it sounds great on paper. You know, it sounds fair enough. They’ve put a few factors in, but there’s going to be these situations that arise where somebody’s like, Hey, I just bought a rental that was completely underperforming. I put a bunch of money into it and now I’m going to increase the rent on the current tenant there and it looks like I’m going to have to pay for them to move across country because of this ordinance like , that sounds a little ridiculous, but who knows. But uh, yeah, that, that is from my curb.com as I mentioned, you can check that out in the show notes of episode, 247 here.

03:13 Um, real quick too, we got a story from a, this comes from twincities.com from DEADeanna Weniger. And this one’s an interesting one. It says that landlords are suing St Paul Minneapolis over a mandate to give tenants voter registration info, yeah. Oh yeah. That’s the title of this story here from my twin cities.com calling a city ordinance requiring landlords to give tenors, voter registration information, a compelled speech, the Minnesota voter’s alliance and a handful of property owners are suing the city of Saint Paul and Minneapolis for allegedly violating their first amendment rights. So basically what this is happening out here and not Saint Paul is they made it a rule that landlords were mandated. Um, and this is as of August 8th, um, to supply voter registration information to new tenants at the time of lease signing or occupancy failure to do so is considered a petty misdemeanor. I agree with the landlord is definitely in this situation. That is a strange like stipulation, strange requirement to make of a landlord, uh, to make a landlord, uh, you know, do lead paint disclosures or espectics disclosure or things of that nature. Makes sense to put it on the landlord to say, hey, here’s your voter registration information and here’s the where you can sign up. And that I think it’s putting a duty of the government essentially, uh, on a private landlord. Uh, you know, there should be something that the government is doing to make sure that people know where to register to vote. Uh, also, if people care to vote, it’s not difficult to figure out where to register to vote just because your landlord gave you us a little bit paper that says, here it is. You’d be like, Oh, thank goodness I didn’t know how to use Google. Thank goodness that Saint Paul put in those a new requirement that my landlord had to tell me. So I think that one’s a pretty absurd. So, uh, hopefully the landlords to our right and getting that repealed out in Saint Paul.

05:14 So this last one, uh, like I said, may not affect you because you’re not from Detroit, but this is a really good reminder to keep up on your local laws. Uh, in Detroit there was a story here from michiganradio.org from Sarah Cwiek and it says it Detroit bands the box I’m most rental applications. So when Detroit landlords will no longer be able to do criminal background checks on potential tenants until they otherwise completed the rental application process. So city officials say the new fair chance ordinance will help x if I understand the right path by offering them a better shot at secure housing when they return home. In Detroit it says there was about a thousand people that return each year from prison. So in this story, it’s saying that the, uh, I’m kind of scanning down a little bit, uh, but it says that landlords can rightfully deny those with history. That includes violent crimes, crimes resulting in lifetime registry on the sex offender list, arson and those types of things. Um, but it also allows landlords to still deny people if they’ve committed a felony within the past 10 years or serve prison time within the last five. Basically though what they’re doing is they’re moving the process of asking for a criminal information further into the tenant screening process. So you can’t put it on the rental application. It has to be, uh, towards the backend of the process. Uh, and it says that this only applies to landlords with five or more rental units in the city.

06:33 Uh, but just thought this was interesting. We see this quite a bit. A lot of cities, a lot of areas, uh, moving towards a ban the box as they call it. And the reason they call it ban the box is I’m on a lot of applications. There’ll be a box. It has to, if you have any, um, uh, felonies or criminal history. Uh, so that’s what it’s talking about is getting rid of that on your application. If you do go to rent-prep, uh, you can find in our resources and the tenant screening guide, uh, we have a free rental application. It does not have that option on there for criminal history just because we’re seeing this is so prevalent in so many areas, uh, that they’re panning the box. So keep up on your local laws.

07:09 So those are some of the recent stories that I wanted to cover real quick. Uh, this next story that I teased at the beginning of the podcast here, uh, comes from, uh, the Washington Post. So the title of this is that a record 7 million Americans are three months behind on their car payments, a red flag for the economy. So this comes from Heather Long. There’s just posting on February 12th, and it’s saying that the Federal Reserve Bank of New York reported Tuesday, uh, that, uh, records 7 million Americans are 90 days or more behind on their auto loan payments. This is even more than during the wake of the financial crisis. Economists warn that this is a red flag. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills. The substantial and growing number of distressed borrowers suggest that not all Americans have benefited from the strong labor market economists at the New York federal and a blog post. So a car loan is typically the first payment people make because if vehicle is critical for creating work and someone can live in a car, if all else fails when the car loan delinquencies rise, and it’s usually a sign of significant duress among low income and working class Americans.

08:21 So I agree with all of that. Uh, people will pay their car loans, they will pay their cellphone bill even before they’ll pay their rent some times. So when you’re thinking of the fact that there’s 7 million Americans that are 90 days or three months behind on their car loans, uh, these are people that are going to have a tough time paying rent as well. So as a landlord or a real estate investor, you know, there’s a couple of things we can kind of glean from this, uh, is make sure you’re screening your tenants, make sure you’re running a background check. I, if you run a credit report, you can see credit history and see how they are paying bills. Uh, you will see a car loan on there and you can see the history of that. Uh, we offer the smart move reports and what happens is when you run that underneath trade lines, uh, you can find that trade line and there’s going to be a payment history, uh, image that you’ll see on the right hand side. And what it is is there’s rent ax marks and a green check marks and you want to see all green check marks. If you see red axes in there, that means that there were late on that payment. Uh, so you can see if they’re late on their last three payments for a car loan. obviously that’s a huge red flag for a landlord. So this article goes on to have some pretty interesting data that an uh, supports with it. It says that auto loan surge in the past several years as car sales skyrocketed, hitting your record high in 2016 of 17.5 million vehicles sold in the United States. And I said overall, most borrowers had strong credit scores. But what they found that with a subprime borrowers with credit scores under six 20 on an average eight 50 point scale, that they may have a little bit tougher time paying back through loan. So the share of auto loan borrowers who are three months behind on their payments peaked at 5.3% in late 2010 the share is slightly lower now I 4.5% but that’s largely due to the fact that there’s so many borrowers right now on car loans. So it, the economists are concerned because the number of people impacted is greater now and the rate has been climbing steadily since 2016 and even more people, uh, have found employment put her still late on paying back their loans. One of the really interesting things here is that it says that, uh, experts warn Americans be careful where they get their loan from. Traditional banks and credit unions have much smaller default rates than auto finance companies such as the buy here, pay here places on some car lots. Uh, according to the data here, it says that fewer than 1% of auto loans issued by credit unions are 90 days or more late compared with 6.5% of loans issued by auto finance companies.

10:54 That’s a huge, huge discrepancy. I mean, you’re talking about six and a half times more, um, delinquency on paying a loan back if it was issued by an auto finance company. Now it’s not that surprising because probably the people that are getting loans from credit unions and banks are, uh, more loan worthy. You know, maybe they had better credit and that’s why they were able to get the loan through the bank or Credit Union, uh, where the people who are getting loans, uh, through the auto finance companies are, uh, have worst credit and couldn’t get a credit union to give them the loan. Or maybe didn’t know enough that they shouldn’t get that loan through the car company that they’re buying the car at. Uh, they didn’t think that they should shop around and talk to their local credit union or bank and, uh, find a better deal. But the thing that I’m kind of picking off from this that’s interesting is if you’re looking at a credit report is to consider where the loan comes from. You know, that might be going into the lease too much, but I mean, if you’re handing the keys over to somebody for your rental property and you see that they not only have a low credit score but they are behind on their car payment, or maybe they’re just one month behind, but they also have picked up the, uh, the car loan through a local, you know, financing company and you’ll probably recognize some of the names on them, uh, just because it’ll be local to your market. So it says here that the number one piece of advice I have is to not get your financing from a car dealership. Said, Christopher Peterson, a law professor at University of Utah and former special advisor to the consumer finance protection bureau.

12:32 He said, shop separately for the vehicle and the financing. Go to a credit union or a community bank to get a low cost loan. Again, that’s a good advice for anybody but as a landlord, consider where they’re getting their loan from, does this person maybe perhaps make poor financial decisions and put undue stress on them because they have such a higher interest rate on that car loan versus if they had gone to a local credit union, were able to work something out there that might be just one more tell of either poor financial decision making or the fact that they’re overextended and couldn’t get a loan and had to go through the car dealership to get that loan. So, moving it forward a little bit more here it said that the share of total auto loan balances that is 90 days delinquent right now of 2018 launch and say right now, but um, as a 2018 was four and a half percent in 2010 is 5.3% in 2003 it was 2.3%.

13:25 So that’s been moving quite a bit. A really interesting story. I definitely suggest you to giving it a full read. Uh, cause it’s also talking about how this can be a red flag, um, with these defaults on auto loans and says that they’re unlikely to take down the entire financial system as mortgages did in the lead up to the 2008 2009 financial crisis. The total auto loan market is just over 1 trillion, far smaller than the 9 trillion home mortgage market. The amount of money people borrow to buy a car is also much smaller, typically under 35,000 versus a home loan. But again, it’s kind of a seeing the, seeing the writing on the wall a little bit when you see that, especially for 30 and under. So many people are having trouble paying back their car loans on time. They’re overextended. Um, as a landlord, uh, this is concerning when you’re considering a new tenant applicant, but just in general, it’s concerning too because you know, whenever people get into that situation, it’s not a good situation to be in. And it’s not good for the economy and it’s not good for people in general. So, uh, yeah, it’s something to keep an eye on.

14:27 So, uh, again, I definitely recommend you to check out that Washington Post article, which we’ll link to in the show notes. So that just about does it for this week’s episode. I appreciate you guys listening in. We’re going to be doing some more recent news stories each week and kind of keeping you up to date on what’s going on out there and things to consider as a landlord or property manager when you’re considering real estate investing. All right guys, until next week, take care and we’ll talk soon.