Fitch Ratings is working on a new methodology for assigning formal seller/servicer ratings to auto ABS issuers and should have the criteria ready sometime next year. Fitch Associate Director Lena Katsnelson confirmed the methodology was being finalized but could not specify when it would be available. Additionally, Fitch published a report outlining its auto ABS ratings criteria last week.

Katsnelson, co-author of the auto ABS criteria report, said the development of formal ratings comes as a result of the increase in auto whole loan sales. The criteria report was published as part of a general effort to make the ratings process more transparent.

Fitch Managing Director Mike Dean, said the agency already reviews seller/servicer strength when it comes to all ABS sectors, and that this step merely quantifies the review process. As with Fitch's seller/servicer ratings in other sectors, the ratings will range on a numeric scale from one through five, one being the highest rating, with plus and minus designations. For credit card seller/servicers, the ratings are assigned as ABPS/S1-' for example, denoting a 1-minus level servicer.

Dean said the three main components of the servicer rating will be financial strength, origination and servicing, similar to the way credit card and student loan servicers are rated. Dean said there are multiple review categories within each component, but was not prepared to comment on the specifics, saying it was too early in the process.

In addition to developing the seller/servicer ratings, Katsnelson said Fitch has also begun applying greater stresses to their reviews of auto loan pools in securitizations, in direct response to changes in collateral in the past few years, including the proliferation of longer term loans, higher LTVs and depressed resale prices of SUVs and trucks due to increased fuel prices. "Competitive dynamics also shifted somewhat during this period, with non-U.S. captives increasing sales, market share position and securitization volume, particularly in the prime sector," according to the report.

"Although performance has stabilized, Fitch remains concerned about the health of the subprime consumer, particularly as it relates to other household debt obligations in a rising rate environment," continued the report. Fitch also highlighted its concerns that declining corporate strength of manufacturers and lower demand in certain segments of the market may lead to higher loss severities, and increased competition within sectors may lead issuers to relax underwriting standards.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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