Auto loan delinquencies continued to shrink in the second quarter, outpacing expected seasonal declines, TransUnion said Tuesday.

The national auto loan delinquency rate, which is tied to loans 60 or more days past due, fell to 0.44% in the second quarter, down 10.2% from the previous quarter and 16.98% from a year earlier.

While auto delinquencies typically decline in the first and second quarters, this was the seventh straight quarter of falling rates, Peter Turek, the automotive vice president in TransUnion's financial services business, said in a press release.

"We have seen delinquencies trend downward as consumers continue to pay down debt," Turek said. "With auto sales improving, more auto loans are opened by consumers placing downward pressure on auto delinquency rates."

The improved performance matches similar trends in credit card lending, where improvements in delinquencies and charge-offs have allowed banks to boost earnings by setting aside smaller amounts of funds to cover future losses.

Auto financing is also more affordable because of low interest rates for new and used car loans, Turek added. The average amount of outstanding bank auto debt consumers had in the second quarter was $12,689, up 0.83% from the first quarter and 0.37% from a year earlier.

"Auto loan delinquencies are expected to remain at historically low levels through the end of the year," Turek said. "Consumers should benefit in the form of competitive offers, making purchase decisions easier and more affordable."

Auto loan originations "held steady" in the second quarter at about $63 billion, more than 25% higher than their trough level in the first quarter of 2009, according to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit released this month.

"It's very clear that competition is returning pretty ferociously in that business," Richard Fairbank, the chairman and chief executive of Capital One Financial Corp., said of auto lending at an investor conference in June.

He added, "We see a lot of regional banks and other folks stepping up their commitment to the auto business."

Fitch on Auto Leases

In another positive report for the auto sector, Fitch Ratings in a report released today said that prices and residual values for U.S. wholesale used vehicles are close to all-time highs, which has led to strong performance for auto lease ABS.

According to the rating agency's inaugural auto lease residual value (RV) loss index, realizations on outstanding auto lease ABS have gotten gains on a consistent basis since mid-2009.  

With RV exposure representing the primary risk in auto lease ABS, this positive performance has produced strong rating performance.

Meanwhile, credit losses have improved significantly versus the same period. Annualized net credit losses (ANL) for auto lease ABS in June, according to Fitch analysts, dipped to almost zero down from the peak of 0.70% auto lease ANL in June 2009.

Credit loss performance trends for this sector have tracked those of auto loan ABS, although at a much lower level. Fitch Senior Director Brad Sohl thinks that there will be more of the same in the near term.

"Supply and demand for used vehicles is likely to support strong residual values for auto lease ABS in the near term," Sohl said. "While the uncertain direction of the economy may lead to some weakening, credit losses are likely to remain low and generally within expectations."

The strong outlook for auto lease securitizations will extend into auto ABS rating performance. Fitch carries a Stable Outlook for auto lease ABS, the rating agency noted. Even though upgrades will probably outnumber downgrades, very few might actually happen because the vast majority of tranches are already rated ‘AAA’.

The rating agency’s auto lease RV Loss Index summarizes monthly residual losses and gains among U.S. auto lease ABS pools originated by different domestic and foreign captive finance firms. The data dates back to January 2007 and will be updated on a quarterly basis. The index covers securitizations backed by auto lease receivables from both mainline and luxury brands.

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