Fitch: Appetite for Risk Growing in the U.S. Auto Loan Market

Business Wire

NEW YORK & CHICAGO--(BUSINESS WIRE)--

Loosening underwriting standards and higher funding costs have led auto lenders to increasingly extend credit to subprime consumers, Fitch Ratings says. However, we view the higher propensity to lend to weaker borrowers as a relative normalization in credit metrics, seen previously with the 2004-2006 vintages.

Experian Information Solutions Inc. notes a gain of 10.6% year over year (YOY) in new financing of subprime auto loans and a 19.2% gain in so-called deep subprime. Banks have extended close to 36.0% of loans to nonprime borrowers in the second quarter (Q2), a 2.0% increase YOY, according to this same source.

Lenders' auto loan portfolios continued to grow through Q2 2013, despite sustained deleveraging in household balance sheets. The number of newly originated auto loans returned to pre-crisis levels, amounting to $92 billion in Q2 (versus $82 billion in Q2 2012), as reported by the Federal Reserve Bank.

We expect new auto loan originations to persist through the subsequent quarter given greater vehicle financing options and heightened consumer demand for automobiles. However, with rapid growth in the number of new auto loans, the prospect of pronounced aggressive underwriting standards remains plausible.

Presently we observe marginally lower average credit scores YOY on most auto loan ABS securitized pools in the latter half of 2012 and 2013. We predict the 2012 and 2013 vintage performance will be slightly weaker relative to the strong 2009-2011 vintages, as the latter vintages contained the highest credit quality obligors, shorter loan terms and lower loan-to-value ratios.

Fitch expects cumulative net loss proxies on auto loan ABS transactions to increase in the event that we observe materially weaker securitized pools, unless higher credit enhancement levels are present to offset risk attached to weaker collateral characteristics.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contact:
Fitch Ratings
Hylton Heard, +1-212-908-0214
Senior Director
U.S. Asset Backed Securities
1 State Street Plaza
New York, NY
or
Rob Rowan,, +1-212-908-9159
Senior Director
Fitch Wire
1 State Street Plaza
New York, NY
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com
View Comments