The U.S. economy shrugged off significant obstacles in 2005, dodging with seeming agility ongoing geopolitical uncertainty, hurricanes, rising interest rates and mounting fuel costs. In addition, the economy proved resistant to fears of falling home prices and persistent weakness in the airline and automotive industries. Even concerns regarding the potential negative impact of bankruptcy reform proved illusive. Through it all, collateral continued to demonstrate resilience throughout the majority of non-mortgage-related consumer and commercial non-mortgage-related term ABS.
Recent turbulence in financial markets has highlighted concerns about rising inflation and slower job creation. Fitch is concerned about the convergence of these overlapping macroeconomic factors on asset performance and the potential impact on outstanding ratings across the full spectrum of structured finance markets and regions. In spite of these forces, Fitch Ratings anticipates prime consumers to continue strong performance throughout the year and maintains a stable outlook on the prime auto, credit card and student loan segments. However, despite performance improvements on a year-over-year basis, Fitch maintains its negative to stable outlook from both an asset performance and a rating volatility perspective for the sub-prime consumer sectors. In addition to volatility in monthly delinquencies and losses, Fitch remains wary about ongoing intense competition within the consumer finance sector and its impact on underwriting standards, especially for sub-prime borrowers.