NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) has released a new research report entitled “Shifting Gears: Analysis of Auto Loan & ABS Trends“. Recently there has been considerable attention on the credit performance of the subprime auto sector due to increasing loan originations and rising losses and delinquencies. This ABS research report analyzes certain performance trends for the auto loan sector and examines KBRA’s rating actions on auto loan ABS.
Key takeaways from this research report include the following:
- Low interest rates, improved vehicle durability and longer term loans made auto finance more affordable and were major factors that contributed to the post-recession recovery. While originations are at their highest level, the growth since 2010 is still below the decrease seen during the Great Recession and is not disproportionate to any risk category. KBRA expects slightly lower originations for 2017 due to lower vehicle sales and tighter credit from lenders.
- KBRA has seen more aggressive risk tolerance in terms of longer tenor loans, higher LTV and lower purchase discounts from dealers since 2010, but underwriting has remained tight. Recently we are seeing subprime lenders taking a cautious approach by tightening credit standards given the increased competition, higher gross charge-offs and delinquencies.
- Subprime borrowers are experiencing the most stress while prime borrowers are having the least stress. Delinquency and charge-off rates for 2015 and 2016 originations to borrowers with subprime scores are above peak levels while rates for near prime and prime borrowers are in line with the best performing vintages and are performing within a narrow range.
- From January 2014 to December 2016, KBRA has taken rating actions on 574 classes of notes across 58 auto securitizations, mostly subprime. During this time, KBRA has issued 220 upgrades, 278 rating affirmations, zero downgrades, and withdrawn the rating on 76 classes due to full repayment.
- KBRA's view is that performance of auto loans will decline modestly for subprime borrowers compared to prior vintages as finance companies have normalized their credit risk tolerance. KBRA also expects modestly lower used vehicle prices. However, favorable economic conditions, consistent underwriting standards from rational competitors, diligent servicing practices and structural protections will counterbalance the impact on ABS note holders. KBRA expects stable to improving ratings for the auto ABS market.
Please click here to access the full report.
About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).