Losses on the subprime auto loans that are bundled into bonds are creeping higher.
In a release today, Fitch Ratings said the figure hit 8.05% in October on an annualized net basis, from 7.61% a year earlier.
Annualized net losses (ANL) on prime auto loans, in contrast, were virtually flat from September, totaling 0.53%.
Still, in Fitch’s view, subprime auto deals are behaving as expected.
Indeed, performance on both the prime and subprime fronts has served as justification for upgrades of 66 tranches in the year through October, up from 63 tranches in the same timeframe of 2014.
The decline in performance is a function of the more relaxed underwriting standards—i.e. riskier borrowers—higher leverage and longer loan terms that were characteristic of loans originated in 2013 and 2014.
Performance is still better than during the crisis. Indeed, much better judging by ANL, which peaked at 10%-13% from late 2008 to early 2009. But loans past due for 60 days or more aren’t so terribly far from the crisis figure, reaching 4.56% in October, up 2.2% from September. That figure maxed out at around 5.1% during the recession.
Buoying up the subprime market are healthy resale prices for used vehicles. A popular metric, the Manheim Used Vehicle Value Index, reached 125.3 in October, having climbed consistently since May. It’s now higher than the average of any of the last four years.