ABS analysts at Citigroup Global Markets are reclassifying all 2004 and later vintage deals from Paramus, N.J.-based auto lender Long Beach Acceptance Corp. into the bank's Near Prime index. Those vintages had previously resided in Citigroup's subprime index, but, Long Beach has "significantly elevated the credit quality of its underwriting profile," according to Citigroup. Analysts now expect that elevation in underwriting profile will result in much improved losses, consistent with other near-prime lenders.

Since 2003 there have been a number of different changes to Long Beach's underwriting standards that have made its later vintages ripe for inclusion in the near prime index. At that time, Long Beach began to target higher-income borrowers with better FICO scores and originating more loans to homeowners. The average annual income for a typical customer in 2004 was $72,287 versus the 1999 average of $44,411, and the percentage of borrowers who are homeowners has almost tripled to 60%, from 22%, in that period.

The average age of vehicles for which Long Beach originates loans has gone down from three years to two, and the average mileage has also decreased from 37,000 miles to 20,000. FICO scores, on average, went up from 584 to 646, although, borrower's debt-to-income ratios did not change during that period and currently hovers around 38%.

Collateral performance has also improved beginning with Long Beach's 2003 vintages, as defaults improved and cumulative loss expectations for static pools declined. Cumulative losses for the 2003 transactions average at month 21 dropped from 6.6% to 2.8%, and the cumulative losses for 2004 deals average 1% as of month 13, Citigroup added.

Long Beach Acceptance is owned by AmeriQuest Mortgage based in Orange, Calif. As of 1Q 2005, Long Beach purchases auto loans from dealers located in 32 states and the company's serviced auto assets totaled $1.2 billion.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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