Extension rates skyrocketed in December for auto loans held in asset-backed securities, a combination of seasonal trends as well as the lingering economic impact of the COVID-19 pandemic.
S&P Global Ratings said that extensions for public prime ABS pools, extensions increased to 0.73% in November compared to 0.55% in November (a 32.5% increase), while subprime borrowers’ extension rates shot to 4.84% from 4.04% from the previous month, a jump of 19.2%.
Extension rates have traditionally climbed in December as borrowers seek temporary help on credit obligations at year’s end, but the sharp rise in granting extensions in 2020 was also a result of many consumers remaining out of work or having hours trimmed due to business restrictions and closures meant to counter the spread of the coronavirus, according to S&P’s report.
Another factor was the expected arrival of $600 U.S. government stimulus payments (plus $600 per child) in January to consumers, the ratings agency noted in a monthly auto ABS performance report.
The extension rates were the highest since the peak of lender deferrals granted in the wake of the COVID-19 outbreak. “Early indications are, however, that January will show a significant improvement,” the agency stated.
The largest increases in extensions among prime lenders came from California Republic Bank (to 1.7% from 1.12% in November) and Ford Credit (1.76% from 1.3%) among prime-loan lenders. Sixteen of 17 prime issuers followed by S&P saw extension rate hikes.
Of 15 subprime issuers tracked by S&P, 14 reported increases led by First Investors (to 3.91% from 2.22%) and Exeter Finance (to 7.13% from 5.62%). Exeter’s rate was the highest among the subprime group, followed by Westlake Financial (6.33%).
The largest share of extensions in the prime pools were granted to borrowers with lower FICO scores. About 33% of all prime loan extensions were for borrowers with FICOs between 651 and 700 for prime pools, although they account for just 17% of the loans represented in the pools, according to S&P.
While one-month extensions remained the most common form of relief, some lenders granted more generous two- and three-month extensions during December. Ford, for example, “shifted its focus to the two-month extensions with 49% in that bucket in December,” after only 39% were given those terms in November.
GM Financial (GMF) and Toyota Motor Credit Corp. also granted a majority of December extensions for two months, the ratings agency reported. Fifth Third Bancorp was most active in granting three-month extensions auto loans, accounting for 58% of its forbearance activity in December.
Among four subprime issuers with publicly reported loan data, two-month extensions represented the vast majority of relief activity for GMF’s AmeriCredit shelf at 93.2%.
Santander Consumer USA was evenly split between one- and two-month extension activity in December for its two subprime ABS platforms, while World Omni Select granted 53.1% of its extensions for one month compared to 46.7% for two months.
The percentage of loans in active extension status increased to 1% (up from 0.8%) for prime issuers and 7.65% in December for subprime prime loans (up from 6.65% in November).
Although the share of loans in forbearance rose in December, S&P noted the levels remain “significantly lower” than in May when loans pooled from prime lenders were at 6.68% deferment levels, and 23.44% of subprime loans in ABS pools were in active extension status.
