Weaker collateral pools in recent-vintage pools are coming home to roost, apparently.
Annualized net losses in asset-backed portfolios of subprime auto loans jumped to 7.39% in July, a 17% jump in June and 28% higher than the loss figure recorded in July 2015, according to a monthly report from Fitch Ratings.
Subprime delinquencies within ABS portfolios overdue by 60-plus days rose 13% month-over-month in July to 4.59%, and were 17% above the level from the same period last year.
The July figure is below the peak 5.16% monthly level recorded earlier in 2016, however.
Despite the increases, Fitch maintains a stable outlook for subprime auto loan ABS performance based on the continued resiliency of used car values that support loan-to-value ratios.
The figures were derived from Fitch’s monthly report on prime and subprime auto loan ABS indices, which track the outstanding $93.5 billion in auto-loan securitization collateral. About 60% of the collateral is in prime ABS deals, with the remainder in subprime.
Fitch said the subprime losses are “emanating” from subprime auto loan transactions issued between 2013-2015, when lenders were pooling loans of weaker quality. Those deals featured lower average FICO scores, higher numbers of extended-term loans beyond 60 months and higher LTV ratios.
“Further, early defaults on extended term loans in pools are driving loss severity higher along with loss rates in 2016,” the report noted.
Exacerbating the losses, Fitch stated, are the “seasonably” slow summer months when consumers take vacations – which presumably leads to car owners skipping their payments to save for travel money.
Despite the month’s subprime woes, auto loan ABS performance remains solid with Fitch having issued 47 deal upgrades year-to-date through mid-August on outstanding subprime and prime portfolios. Delinquency (0.4%) and loss (0.48%) rates for prime ABS portfolios remains muted, with modest climbs in those portfolios as well.
“Prime auto ABS continues to produce solid asset performance in 2016, supported by a surprisingly strong wholesale vehicle market which is benefitting from very robust truck and SUV values,” wrote Fitch.
Large vehicles are also supporting healthy used car values, which “continue to defy expectations” in the midst of the loss patterns. Hence, Fitch believes that used vehicle values will be “pressured” in the latter stages of 2016 and fall from current levels.
“Rising used vehicle supply, including from notable increases in residual returns expected in 2016 and early 2017, will constrain values and contribute to losses rising,” the report stated.
