Moody's Ratings incorporated the challenges posed by a tariff-induced economic slowdown into its credit analysis of Oregon Community Credit Union's (OCCU) $375 million securitization of loans supporting customers' purchases of new and used automobiles.
Higher prices for goods stemming from the Trump administration's tariff policies could pose economic headwinds for consumers and lead to weakening auto-loan performance, Moody's said. Used car prices stabilized in recent months after coming down from historical highs, but remain prone to volatility should the economy slow, the ratings agency noted.
"Falling used car prices expose the transactions to lower recovery rates, higher loss severity, and consequently higher net losses," Moody's said. "Slowing economic momentum and a loosening labor market could further impact consumers, posing challenges to their ability to service debt."
J.P. Morgan Securities is lead underwriter on Eugene-headquartered OCCU's third asset-backed security (ABS) offering. It originates auto loans directly through its branches, internet and phone applications, and franchised and independent dealers.
The rating agency notes three credit strengths, including borrowers' weighted average credit score increasing modestly to 733 from 727, although it pointed out that their leverage has also increased, with weighted average loan-to-value rising to 113% from 105%. The other strengths are the credit union's longstanding origination and servicing history, and increasing credit enhancement as the loan pool amortizes.
Among seven credit challenges described by Moody's are the credit union's limited securitization experience, and its first-time inclusion of longer loans, from 88 to 96 months, that make up 9% of the collateral pool.
In addition, Oregon Community's first two ABS deals have been weaker than Moody's anticipated. The rating agency now calculates the cumulative net loss expectations on the 2022 and 2023 offerings at 4.25%, compared to predictions of 1.4% and 3.0% when the deals closed, respectively.
"Despite the weak performance of prior deals, we have observed improvements in managed
portfolio performance during the most recent 2024 vintages," Moody's says.
In addition, the 86% of borrowers in Washington and Oregon present significantly higher geographical concentration risk than typical auto ABS deals, Moody's says. And while OCCU has structured the transaction to minimize the likelihood of the NCUA becoming conservator should the credit union become insolvent, the rating agency says a small risk remains that that could happen, potentially delaying or reducing payments.
