Subprime Securitization Markets Sees Increased Fragmentation

The secondary market continues to fragment as three players have issued their first-ever securitizations within the last year — including OneMain Financial, Sierra Auto Finance, and Honor Financial, said Amy Martin, lead analyst for Auto ABS at S&P Global.

The OneMain Financial deal in particular stands out because it’s backed by direct-auto, refinanced loans made by Springleaf Holdings, which was acquired by OneMain in 2015, Martin said during the Nonprime Auto Financing Conference.

“The OneMain deal is very different from the others listed here,” she said. “These individuals did not go and secure the loan at the time they bought the vehicle; this is basically cash-out refinancing, so this is really a new type of financing being securitized and we do not consider it the same as title lending.”

The $400 million deal was issued in July 2016 and is performing as expected, Martin said. The pool had an average APR of 17.4%, average amount financed of $12,000, and a weighted average Fico of 609.

Honor Finance is the other lender to watch after the company issued $100 million in deep subprime auto loans last year. With 181 employees financing in 15 states, the company grew its portfolio 26% year over year to $213 million as of September 2016, a March S&P report revealed.

“Most of Honor’s borrowers have experienced prior credit difficulties and generally have Fico scores, ranging from 475 to 650,” S&P wrote in the report.

Martin identifies 18 subprime issuers on the market today, compared to just three in the aftermath of the 2008 financial crisis. However, fragmentation and higher delinquencies and losses are no concern for a “bubble,” and she believes there is still room for the secondary market to grow.

“In terms of subprime auto loan originations — yes they have grown, but they still haven’t gone back to peak levels we saw in 2005 and 2006 of $135 billion,” she said at the conference. “In 2015, it was close to crisis peak at $125 billion, but it still didn’t get back to pre-crisis levels, and last year it actually dropped a little to $119 billion for about a 5% reduction.”

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