Longer-term loans weigh down USAA securitization

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Nearly two-thirds of the loans in USAA’s first asset-backed securitization of the year have terms longer than 60 months — a first for the company, according to a Moody’s Investors Service pre-sale report published Tuesday.

In the $503 million transaction, 64% of loans have an original term greater than 60 months, which is the highest proportion of longer-term loans issued in a USAA transaction, the report noted. In fact, 7% of the securitization pool consists of loans with terms greater than 72 months, according to Moody’s. By comparison, the percentage of loans with terms greater than 60 months never surpassed 58% in USAA securitizations prior to 2016.

The rating agency marked the higher proportion of longer-term loans as a credit challenge because longer-term loans generally are prone to higher loss rates due to a longer period of exposure to negative credit events.

Also read: Lengthening loan terms a concern for ‘healthy’ subprime ABS market

However, because USAA members typically use many different USAA services, “often indefinitely,” the San Antonio, Texas-based bank has access to verifiable information about prospective and current auto borrowers. That data, in turn, supports a strong direct auto lending credit profile, Moody’s noted.

Despite the higher concentration of 60-plus month loans, the outstanding USAA transactions have continued to experience low losses. As such, Moody’s expects this pool to have a 0.4% cumulative net loss rate — the same as USAA’s previous transaction in 2017.

The weighted average FICO score for the securitization is 740, and 54% of the vehicles in the mix are new. The weighted average original term for loans in the securitization is 68 months. The transaction is slated to close July 31.

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