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Fitch Says Prime Losses Down But Issues Words of Caution
Published: 06/17/2010
NEW YORK — According to Fitch Ratings delinquencies and losses on prime auto loan asset-backed securities hit their lowest levels in May since the summer of 2007.
However, officials cautioned that this trend was "mainly due to seasonal factors." In fact, Fitch does not see this strong performance continuing.
"Performance will come under seasonal pressure during the slower summer months as the effects of tax returns wear off," explained Ben Tano, director for Fitch.
"Although consumer confidence hit a two-year high in May, unemployment and consumer bankruptcies remain high and consumer fundamentals are poor overall," he added.
The company's prime annualized net loss index improved 17 percent to 0.87 percent in May over the previous month, which is the fourth straight drop in losses.
Annualized net losses in May were almost 50 percent below the same month in 2009, and the lowest rate on record since August 2007, officials highlighted.
In fact, they stressed that this was the ninth consecutive month of year-over-year drops in the loss index.
"The improvement in losses came in spite of mild softening in used-vehicle values in May versus prior months," executives noted, citing data from the National Automobile Dealers Association that showed prices fell by about 0.5 percent from April to May.
Fitch's prime 60-plus day delinquency rate held steady at 0.51 percent. The index was 29.7 percent lower than the previous year and the lowest level since June 2007.
"Delinquencies dropped in recent months driven by seasonality, but with the onset of summer, delinquencies typically rise above levels in the first half of the year, following seasonal patterns," according to the company.
Ratings performance for the year is increasingly positive when looking at recent performance trends, however. Through May, Fitch said it has issued 30 upgrades to 15 trusts compared to four upgrades to three trusts during the same time frame of 2009.
"Auto upgrades are likely to slow due to limited subordinate note issuance in the 2008 and 2009 vintages," Tano pointed out.
Performance wasn't so strong in the subprime sector, however, where 60-plus-day delinquencies climbed 6.6 percent in May to 3.05 percent.
Subprime annualized losses shrunk dramatically by 31.4 percent to 4.5 percent, which is at about the level of summer of 2007.
Officials noted that limited subprime issuance in recent years has contributed to the volatility in the indices, as the transactions season.
Looking forward, officials said improvements in the 2009 vintage versus earlier vintages will continue to play a key role in the company's indices due to tightened underwriting and strong collateral characteristics in more recent vintages.
Along with lower loan-to-value ratios, credit bureau scores for the 2009 vintage average 743 points compared with 727 and 715 in 2008 and 2007, respectively.
"The stronger collateral mix will serve as a moderating factor to the negative pressure from the greater U.S. economy," the company indicated.
Fitch's indices track about $55.3 billion worth of prime and subprime auto loan ABS. Of this, 86 percent are prime loans while the remaining are subprime loans.