Year-over-year net losses on securitized prime and subprime auto loans fell in the first quarter, reversing recent trends in the underlying loans of auto ABS deals, and hinting at better days ahead for the sector.

The annualized net loss rate index for prime auto loans was at 0.65% for the first quarter, a 16% drop compared to the same period last year. Delinquency rates also stabilized, compared to the first quarter. The proportion of account balances for which a monthly payment was more than 60 days late was 0.40% in the first quarter. That was relatively flat compared to the same period last year. When compared to 1Q05, it was a modest rebound, said Moody's Investors Service.

Among subprime loans, the annualized net loss rates for the highloss was at 179.9, which came out to be about 14.4% lower than the loss rates for the same period in 2005, an indication of improvement in the performance pool, according to Moody's. As for April's performance, prime auto ABS loans fell to 0.43%, a 14% improvement over the previous month's net loss rate of 0.49%.

Payment rates improved, too. The proportion of loans for which payment was more than 60 days late fell 3.2% to a 0.33% level.

"The macroeconomic environment remains favorable for strong auto loan performance, as the unemployment rate has continued to fall at a consistent pace through the first quarter of 2006," Moody's said.

Not all first quarter auto ABS news was positive. Loans originated in 2005 generally showed higher net losses and delinquencies that those from 2003 and 2004, an indication that issuers were taking on more incremental risk as they searched for more lucrative returns on ABS paper, Moody's said. "This may explain the overall trend of faltering rates of net loss improvement over the second half of 2005," the rating agency said.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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