Approximately 43% of Toyota Motor Credit Corp.’s loan pool balance in its latest securitization have an original term of 60 months or more — the highest percentage over three previous issuances, according to a presale report by Moody’s Investors Service.
The percentage is higher than the 39%, 35%, and 31% rates in the pools backing 2017-B, 2017-A, and 2016-D, respectively.
Toyota Auto Receivables 2017-C Owner Trust is backed by $1.3 billion in prime auto loans, according to the report. Loans in the pool have an average terms of 64 months and a weighted average seasoning of 12 months.
“The trend of an increasing proportion of longer term loans began with the TAOT 2015-A transaction, which had only 25% of the pool in longer term loans,” Moody’s said in the report. “Longer term loans in the prime segment generally have weaker performance compared to loans with original terms of 60 months and less because the longer term exposes the loan longer to risks and increases the volatility of expected defaults. The continued increase in proportion of longer term loans is a driver for our increased cumulative net loss expectation for TAOT 2017-C to 0.6% from 0.5%.”
Extended loan terms have increasingly become a trend in the auto finance industry over the past few quarters. Back in March, Ford’s CFO Marion Harris said during a live-broadcasted forum that lenders will “continue to extend loan terms” even though “this isn’t advantageous for the industry.” Earlier this month, Ivan Drury, an analyst from Edmunds, told AFN that new-vehicle loan terms are expected to go slightly higher. Some programs has even offered loan terms greater than 96 months.
That being said, the credit quality of TMCC remains strong, with a weighted average Fico score of 760, Moody’s said in the report. Nearly 32% of TMCC’s borrowers have a Fico score of 801 or higher, and more than 80% of the Fico distribution falls into the 701 and above range.
Additionally, despite the losses on 1Q16, 2Q16, and 3Q16 edging higher, losses for previous TMCC transactions have been among the lowest of its peers. Moody’s anticipates TMCC’s cumulative net loss for 3Q17 to be 0.6%.
