LAS VEGAS — Though ratings of auto finance securities have largely withstood fallout from the subprime mortgage meltdown, losses are worsening in prime and nonprime auto pools and access to capital is being constrained. Here are three snapshots of credit performance, as presented by Fitch Ratings executives Kevin Duignan, managing director and head of U.S. ABS, and John Bella, head of the auto ABS team, during a session at the Auto Finance Summit last month.
ABS Volume Plunges
Since peaking in 2005 at nearly $120 billion, auto-backed securitization volume has steadily declined. So far this year, less than $40 billion of loans and leases had been securitized — about half the volume for all of 2007. That trend of contraction will continue through mid-2009, Duignan predicted.
Losses Track Unemployment Rate
The U.S. unemployment rate is an uncanny predictor for losses within Fitch-rated prime auto loan pools. The year-over-year unemployment rate climbed 0.5% in August, while Fitch’s Cumulative Net Loss Index for prime loans inched up to 0.8% from 0.6%. If the pattern of rising unemployment continues — job losses are currently up almost 30% — the rate will hit 7% by August 2009, Duignan said.
Lenders Tighten Credit
Since initiating efforts last year to tighten underwriting, collateral characteristics among prime issuers have improved compared with 2007. Still, the origination criteria are less stringent than they were in 2005, according to Fitch data. For starters, average loan-to-value ratios have dropped to 95% this year from 98% in 2007. In 2005, LTVs averaged 94%. Also, loan terms averaged 62 months in 2008, down from 63 months in 2007.
—Victoria Fierson
