Collateral Damage : Human and Physical Capital in Consumer Lending

We study the relative importance of asset-backed lending (ABL) and cash flow-based lending (CFBL) in auto finance. We find that negative durability shocks generated by vehicle discontinuations lead to increased loan-to-value ratios and down payments. These results are consistent with an ABL+CFBL model in which CFBL is particularly important for low-income consumers. After default, two-thirds of lender recoveries arise from the vehicle and one-third come from the borrower personally. The heavy use of CFBL by low-income consumers suggests that their relative credit access may decline with the securitization-driven rise of ABL