Delinquencies on U.S. subprime auto asset-backed securities have reached levels not seen since 1996, according to Fitch Ratings.
Subprime delinquencies of 60 days or more hit 5.16% in February, nearing the previous record of 5.96% reported in Oct. 1996. February’s delinquencies are up 11.6% year over year, and 3.6% month over month, according to the Fitch report released yesterday.
“Sharp origination growth, increased competition and weaker underwriting standards over the past three years have all contributed to the weaker performance of the past year,” Fitch said. “Subprime ABS issuance averaged just over $20 billion in 2013 and 2014 before ballooning to over $25 billion in 2015, the highest level since 2005-2006.”
The number of lenders issuing auto ABS has increased to 19, up from the previous high of 14 in 2005 and 2006, also contributing to the weaker performance.
The prime sector has been stable, however, with delinquencies at 0.46% in February — up 9.27% MoM, but flat on a YoY basis, Fitch reports.
The rating agency expects both subprime and prime rates to improve over the spring months.
“That said, typical seasonal benefits are likely to be more muted this year versus recent years given rising pressures on the aforementioned asset performance as well as anticipated weakness in the wholesale market,” according to the report. “Both the prime and subprime sectors have been buoyed by strong used vehicle values over the past five years, contributing to lower loss severity on defaults.”
Overall, auto loan 60-day delinquency rates increased 6.4% year over year, reaching 1.24% in 4Q15 — the highest level since 2010, according to TransUnion data.
“We still remain in a low delinquency environment, and delinquency rates are manageable,” Jason Laky, senior vice president of automotive and consumer lending business at TransUnion told Auto Finance News previously. “Consumers have made the auto loan payments a priority, other products they’ll do without.”
Laky suggested keeping an eye on unemployment rates instead. “As unemployment rate moves up or down, it will define which direction delinquency rates will be taking.”
