NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: In the Rear View Mirror: Prime ABS Collateral Trends
U.S. prime auto ABS collateral has been marginally weakening in recent months due in part to heightened competition amongst auto finance companies, according to Fitch Ratings in a new report.
Since 2011, credit quality of the underlying pools has declined marginally, but remains much stronger than pre-recessionary levels. Competition and low loss levels are encouraging slightly riskier loan attributes for auto ABS, according to Senior Director Brad Sohl.
Finance companies are catering to consumer demand for low monthly payments by extending loan terms, namely loans with terms greater than 60 months. 'Auto finance companies are increasingly offering 73- to 84-month loans to borrowers across the FICO spectrum,' said Director Joyce Fargas. This trend is likely to continue throughout this year, which could drive higher loss severity in ABS transactions.
'Prime auto lenders are also showing a higher propensity to lend to non-prime borrowers,' said Fargas. 'As a result, we're seeing slight increases in non-prime concentrations within prime auto loan securitized pools.' Fitch is expecting exposure to borrowers with FICO scores below 650 to trend higher in prime auto ABS portfolios in 2015, but to be contained to around 10% of ABS pool.'
Despite the marginally negative migration in collateral, Fitch is maintaining its stable performance outlook for prime auto ABS. Fitch's rating outlook for the sector is positive, and expects upgrades to be strong, consistent with the rate seen last year. Fitch upgraded 51 prime auto ABS tranches through the end of 2014, representing the highest rate in six years.
Additional information is available at 'www.fitchratings.com'.