NEW YORK — Though subprime originations have declined, “a greater share of these originations are making their way into the securitization market,” Amy Martin, senior director of structured finance ratings at S&P Global Ratings, said during the agency’s Auto Industry Hot Topics event last month.
With banks reducing their loan volume, independent finance companies have filled the void, she said. Independent lenders are typically more dependent on the ABS market for funding than banks, which can use deposits to fund loan acquisitions, she said.
Meanwhile, recovery rates in subprime securitizations continue to decline, a result of lender pullback on loan-to-value ratios, according to S&P. “We’re finally starting to see some stabilization in recovery rates,” she said. “Lenders have pulled back on the LTVs, which is helpful.”
In 2017, subprime auto loan ABS increased 10% to about $25 billion, Martin said. Year to date, subprime auto ABS is up 20%, she added, spurred by larger securitizations from well-established players like AmeriCredit, Santander Consumer USA, Westlake Financial Services, and Credit Acceptance Corp.
Private equity-funded players that emerged post-credit crisis — like Exeter Finance Corp. and Global Lending Services — have also contributed to the higher ABS volume.