Subprime ABS Delinquencies Spike to 20-Year High, Fitch Says

Subprime ABS delinquencies at least 60 days past due reached a peak that hasn’t been observed in two decades, according to data from Fitch Ratings. 

ABS subprime delinquencies grew 11.6% in February compared to the prior year, to a high of 5.16%, a rate not reached since October 1996 when it peaked at 5.96%. Even during the financial crisis, the subprime delinquency rate never rose this high, peaking at 5.04% in January 2009, according to Fitch’s auto index chart.

While losses have also increased, those figures have not matched the record-breaking status delinquencies have.

Subprime annualized net losses reached 9.7% in February, which is an 11.6% increase over January’s figure and a 34.1% gain compared to February 2016. Yet, losses remain below the 13.1% loss rate the industry experienced in 2009, Fitch reports. 

“Sharp origination growth, increased competition, and weaker underwriting standards over the past three years have all contributed to the weaker performance,” the ratings agency wrote in a press release detailing its findings. “Increased competition has led to increases in loan-to-value (LTV) ratios and extended term lending. Additionally, lenders have marginally weakened credit standards, with particular increases in originations to borrowers with no FICO scores.”

Prime securitizations look more favorable but are still experiencing some “normalization,” Fitch reports.

Delinquencies 60 days or more past due remained flat year over year, at 0.46%, while annualized net losses grew to 0.69% in February — a 32.1% increase compared to the prior year. That loss rate represents the highest mark since February 2011 when the rate stood at 0.90%, but is still “well below” peak prime losses that reached 2.2% in January 2009.   

“Fitch considers the slight increases in losses to be more of a normalization trend within the prime sector as performance trends move away from historical lows experienced over the past five years,” the release states. “However, loss levels could rise further if LTV and extended term lending are not adequately managed and continue to increase.”