Santander Consumer USA’s latest securitization of deep-subprime auto loans is the first ABS to include originations under the lender’s new underwriting exceptions policy, according to a presale report by Moody’s Investor Service.
The $1.5 billion transaction — Drive Auto Receivables Trust 2017-3 — is Santander Consumer’s (SC) third securitization of deep-subprime auto loans this year.
SC recently changed the way underwriting exceptions are reported. “Under some circumstances, contracts may be approved that are exceptions to both the credit underwriting policy parameters and the global limits,” Moody’s said in the report. Global limits are credit factors, such as maximum LTV and maximum term. A contract which exceeds a global limit at origination is now considered an exception to SC’s underwriting guidelines.
Previously, only loans that were exceptions to the credit underwriting policy parameters — and not global limits — were reported as exceptions. “As a result of this change, 0.96% of the loans in this pool are exceptions, while under the old policy only 0.20% of the loans would be considered exceptions,” according to the report.
The 2017-3 pool’s weighted average Fico of 566 is slightly lower than 2017-2’s 568 and 2017-1’s 570. The weighted average original term of 71 months is on par with 2017-2 and 2017-1, which were 72 and 70 months, respectively. The ABS is comprised of 34% new and 66% used vehicles.
Additionally, SC recently brought its delinquency policy for Santander channel loans into alignment with its delinquency policy for Chrysler channel loans. For loans originated through the Santander channel on or after Jan. 1, a borrower is required to make at least 90% of the monthly payment amount to avoid delinquency, whereas before for the SC channel a borrower was required to only make 50% of the monthly payment amount to avoid delinquency.
“The change in delinquency policy for Santander channel originated loans could impact whether an obligor becomes delinquent and also when the obligor becomes delinquent,” the report states, adding, “under SC’s customary servicing practices, any obligor who makes a partial payment large enough to avoid delinquency in month one must make a payment that is 100% of the monthly payment amount to avoid entering delinquency beginning in month two.”
Therefore, if a person paid 50% of their total payment in month one, he or she would be obligated to pay 150% in month two, whereas the new policy requires 90% of the payment in month one and only 110% in month two. Approximately 88% of the collateral in the 2017-3 pool was originated in 2017.
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