Extended-term contracts, an increased loan-to-value ratio, and a rise in the number of loans with lower Fico scores are responsible for weakened credit quality in Bank of the West’s $764 million auto trust securitization — the bank’s first of the year — according to a Fitch Ratings’ presale report.
The average term of loans securitized in the trust is 77.8 months. The share of extended-term contracts, or those with terms greater than 60 months, is 96% — the highest of any of the bank’s prior pools, Fitch noted.
In addition, the weighted-average LTV is 108.5% — higher than lender’s 2017 and 2018 auto securitizations. The share of loans with a Fico score falling between 650 and 699 rose to 33.2% versus 25% in the previous two pools.
Bank of the West’s 2019-1 auto securitization is comprised of seven tranches, with the lowest tranche holding a rating of BBB- from both Fitch Ratings and S&P Global Ratings. By comparison, the lowest tranche in the bank’s 2018 auto securitization was A-rated, according to ratings published by S&P Global.
The securitization is expected to close on June 26.
Read more: Retouching Operations: Bank of the West Adds to Its Financing Palette
The rise in popularity of extended loan terms continue to be a concern for rating agencies in the auto securitization market. At the Nonprime Auto Finance Conference earlier this month, Amy Martin, senior director of structured finance at S&P Global, noted that 84-month loans incurred twice the losses compared with 60-month loans.
Last year, Bank of the West originated $1.7 billion in loans, according to Big Wheels Auto Finance Data 2019. At the beginning of 2018, Bank of the West invested $40 million to expand its credit band to near-prime loans and transform itself into a “full spectrum, full service, flexible vehicle financing platform,” Michael Pereira, executive vice president of personal finance, previously told Auto Finance News.
