Subprime loan delinquencies are on the rise, and rating agency Standard & Poor’s warns that automated verifications could send those late rates ― and the resulting losses ― even higher.
As of Sept. 30, 2013, the average rate for payments 31-or-more days late at subprime finance companies hit 7.6%, up from 6.2% year over year.
Specifically, delinquencies at American Credit Acceptance climbed to 15.2% at the end of September 2013, compared with 10.7% in the year prior. Drive Time’s delinquencies grew to 14.5% from 12.6% for the same period, and Santander Consumer USA’s late rates rose to 13.2% from 13.0%.
While rising delinquencies could signal a worsening or changing economy, they can also indicate the loosening of underwriting standards, or perhaps a lender that’s grown its portfolio faster than its servicing infrastructure.
But S&P also wonders whether delinquency rates are on the rise because of a shift to a more automated verification process, from a manual one, according to a report released this week called Subprime Auto Loan Performance: The Best Is Behind Us.
That said, S&P is paying attention to telling changes in auto inventory and in emerging consumer behaviors. Citing an increase in supply, coupled with a glut of expected lease returns, S&P expects a decrease in used-vehicle prices. Also, once auto credit becomes plentiful, as it is today, credit-impaired consumers see less incentive to remain current on their contracts, according to the report.
For 2014, S&P predicts a continued rise in delinquency levels among subprime players.