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Kroll: Deterioration continues in subprime auto ABS performance

Subprime auto loan securitizations continued to underperform in July, with net losses and delinquencies continuing to increase month-over-month and year-over-year, according to Kroll Bond Rating Agency.

In Kroll’s monthly non-prime auto loan index, collateral performance suffered as the percentage of cured 60-day-plus delinquencies (formerly delinquent accounts that have since become current) was only 14.2% for subprime borrowers, compared to 16.2% in June. Charge-offs on 60-day-plus delinquencies were down to 23.4% for non-prime borrowers compared to June (24.1%), but are still at near peak levels over the course of the past year.

“Notably, although non-prime charge-offs have remained fairly steady over the past year, the decline in the 60+ day cure rate is somewhat concerning as it could lead to increased losses in the coming months,” according to Kroll analysts.

Net subprime losses for July were 7.3%, which was up 67 basis points from June and 25 basis points over July 2018. Sixty-day delinquencies were up 59 basis points from June to 4.41%, which is an increase of 67 basis points year-over-year.

Kroll said the month-over-month increase “was likely driven by seasonal factors, as the benefit of tax refunds has already dissipated and borrowers are spending on summer travel.”

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Kroll’s prime auto loan index also had signs of deteriorating credit conditions, with annualized net losses last month increasing 10 basis points to 0.56% compared to June, while 60-day-plus delinquencies rose three basis points month-over-month to 0.42%.

But year-over-year performance improved, with July marking “the 18th consecutive reporting period in which net losses and delinquency rates have fallen [year-over-year] within the index,” the report stated. The “favorable” year-over-year performance is due to both a heavier concentration of captive finance lenders in the index – lenders who historically report fewer losses and delinquencies – as well as tighter underwriting from a number of prime issuers included in the index, according to Kroll.

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Auto ABS Subprime lending Kroll Bond Rating Agency
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