Credit unions to ramp up ABS volume in 2020

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Credit unions are likely to boost auto asset-backed securitization volume this year, according to reports issued this week by S&P Global Ratings and DBRS Morningstar.

Auto loans accounted for 34% — or $374.5 billion — of outstanding credit union loans as of the third quarter of 2019. To that end, the sizable pool of auto loans originated by credit unions “illustrates the future securitization potential for the sector,” DBRS noted.

In fact, GTE Federal Credit Union brought $184.8 million in prime auto loan receivables to market in November 2019, marking the first credit union securitization rated since 2004, S&P’s Senior Director of Structured Finance Amy Martin told Auto Finance News.

It’s not surprising a credit union supported by a large portfolio and diverse assets was the first to test the capital markets, according to DBRS. GTE’s auto portfolio was $784.4 million as of June 2019, representing 37% of the credit union’s assets.

Moreover, the potential spike in credit union securitizations could be attributed to an opinion that was issued in 2017 by the National Credit Union Administration that said federal credit unions have the authority to issue and sell securities incidental to their business, Martin noted.

“As a result, current regulations now clearly allow the safe-harbor treatment of any assets transferred in connection with a securitization,” Martin said. “GTE was the first publicly rated [federal credit union] seeking to execute an auto loan securitization under the aegis of this opinion. Given the 2017 opinion, we expect other federal credit unions to securitize.”

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