Moody’s lifts auto underwriting outlook

Moody’s Investors Service softened its assessment last week of auto underwriting to “weaker end of historical averages” from “weak,” as 30-plus day delinquencies stabilize, said Warren Kornfeld, senior vice president of Moody’s financial institutions group.

Economic adjusted credit performance of auto loans improved in the fourth quarter of 2019, according to Moody’s report on fourth-quarter household debt and income. The rate of new auto loans that transitioned to 30-plus days delinquent declined to 6.9%, compared with 7.1% in the prior-year period. The trend is likely to continue throughout 2020, Kornfeld noted.

The slight lift in Moody’s credit assessment may signal to lenders that they can be “more comfortable” with respect to their credit, he said.

“If a lender has been tightening up credit, knowing that the whole market has been tightening up credit to a point that’s more stabilized, they may be more comfortable with what they’re originating in their credit box, feeling less of a need to potentially continue to tighten,” Kornfeld said.

Meanwhile, new auto loan growth has flattened during the last couple years, a “credit positive” trend in Moody’s book. “I think that’s going to result with the stabilizing of delinquencies and therefore charge offs,” Kornfeld said.

Year-over-year auto loan growth hit 4.7% in the fourth quarter, which is equal to the 4.7% rates experienced in the last three years, according to the report.

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