Car-loan industry suffers losses for any third straight month


Auto loans-and the bonds built on repackaged loans-suffered losses in September for a third consecutive month, Fitch Ratings said Monday.

Losses rose on each prime and subprime car or truck loans, while delinquencies also moved higher, as outlined by the most recent month-to-month auto loan ABS (asset-backed securities) index from Fitch. The subprime car-loan marketplace is generally understood to be loans extended to borrowers with credit scores below 600.
Fitch’s ABS index tracks the overall performance of $97 billion of outstanding securitized collateral, with 58.5% of your index, or $57 billion, comprising prime ABS collateral, along with the remaining 41.5% tied to subprime collateral. The $97 billion total is equal to just eight.8% of your total of $1.1 trillion in auto loans outstanding.

The trend has led some lenders to push back on underwriting high-quality in an effort to combat declining asset functionality, the rating agency mentioned in a note.
“As a result, quite a few auto ABS securitizations came to marketplace final quarter with marginally better credit quality, including steady or marginally improved FICO scores,” stated Fitch analysts led by Hylton Heard. “That said, only time will inform how long this trend will last and regardless of the pushback by some lenders, Fitch does not think that these changes may have a considerable positive influence on asset overall performance.
Annualized net losses on prime auto loan ABS climbed to 0.7% in September, their highest level given that early 2011, said Fitch. Subprime annualized net losses rose above 9% for the second time this year.

Prime 60-plus day delinquencies edged up to 0.44% in September, and have been up 11.5% in the exact same month a year ago. Annualized net losses rose 17.3% from August, and had been up 31% from September of 2015.

“The current rate is approaching loss rates consistent with latter part of 2010 and early 2011,” mentioned Heard.

Delinquencies on subprime loans rose to 5.05% in September, the second highest level due to the fact 2001, and were up 13.2% on September 2015. The losses in subprime are getting driven by poorer 2013-2015 vintage overall performance, too as a altering mix in Fitch’s index.
“Smaller, independent auto-finance corporations, which includes new market place entrants with greater loss profiles, comprise a bigger share from the index right now versus two-to-three years ago,” stated the note.

These new players had been drawn into the marketplace by a bounce in auto sales that began in 2012 because the U.S. economy was emerging from the great recession. Smaller sized lenders have been gaining ground on their traditional rivals. As of August, the two significant subprime platforms rated by Fitch - GM GM, -0.38% Financial’s AMCAR platform and Santander Consumer USA’s SDART platform - totaled just 54% from the subprime index, down notably from 84% in 2013.
Used-car values are falling simply because of slower sales. Meanwhile, applied supply is rising due to the fact of higher off-lease car and trade-in volumes. Inventory levels are larger and incentives are also rising.

“This will impact loss severity and ABS performance over the following six months,” mentioned Fitch.

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