NEW YORK--(BUSINESS WIRE)--Delinquencies on U.S. subprime auto ABS have reached a level not seen since 2009 with underperforming loans from recent vintages driving the increase, according to Fitch Ratings.
Subprime delinquencies of 60 days or more hit 4.98% in January, marking the highest level since September 2009 (4.97%). Despite the rise in delinquencies, subprime annualized net losses (ANL) leveled off at 8.72%. Subprime ANL were still up 6.5% year-over-year and are expected to trend higher in 2016 closer to the 10% range.
Weaker performance in the subprime sector is being driven mainly by the weaker credit quality present in the 2013-2015 securitized pools, along with marginally lower used vehicle values.
Subprime 60+ day delinquencies are trending higher closer to the peak index level of 5.04% recorded in early-2009. Delinquencies rose 6% month-over-month (MOM) in January, and were 4.8% higher than a year earlier. ANL were down 1% in January MOM, and 6.5% higher year-over-year (YOY).
Both prime and subprime auto loan ABS asset performance will improve over the spring months with the onset of tax refunds hitting U.S. That said, Fitch expects seasonal benefits to be more muted this year versus recent years given rising pressures on the aforementioned asset performance.
Of note, Fitch only rates the two largest issuers in the subprime auto loan ABS sector, namely General Motors Financial's AMCAR and Santander Consumer USA's SDART ABS platforms. Cumulative net losses (CNL) on their recent 2013-2015 ABS transactions are rising marginally, but remain well within Fitch's expectations. Fitch has consistently upgraded their subordinate bonds in 2015 and early 2016 as the transactions perform in line with expectations.
Despite softer performance trends, Fitch continues to have a stable outlook for subprime auto ABS asset and ratings performance in 2016. Fitch expects ANL to rise to or surpass the 10% mark in 2016 as asset performance slows. That said, this should not have an impact on ratings performance this year. The peak subprime ANL rate was 13% recorded in early 2009 at the height of the financial crisis, so current losses are well below this level.
In the prime sector, 60+ day delinquencies were at 0.42% in January, up 8% MOM but 7% lower versus a year earlier. Prime ANL rose to 0.65% in January. While this represents the highest level since March 2011 (0.67%), the number is still well below the historical average of 0.92%. Fitch expects losses to rise to the 1% range in 2016, comfortably within historical levels, and similar to the stable 2004-2006 period.
Fitch took over 90 positive rating actions in 2015 across the prime and subprime sectors. This was up notably from 70 upgrades issued in 2014, and the second highest level of upgrade activity since 2007.
Fitch's indices track the performance of $95.9 billion of outstanding auto loan ABS transactions, of which 61% is prime and remaining 39% subprime ABS.
Additional information is available at 'www.fitchratings.com'.