NEW YORK (S&P Global Ratings) Sept. 11, 2017--S&P Global Ratings' vintage data for subprime auto loan asset-backed securities (ABS) issued in 2015 and 2016 have shown that delinquencies are rising, meaning borrowers are missing payments even though the unemployment rate is at its lowest level since 2001.
At the same time, recoveries have worsened because vehicle values are declining. In 2015 and 2016, issuers also included more deep subprime auto loans--those with lower and no FICO scores--in their securitizations than in the past.
All of these factors have coalesced, and as a result, loss rates for S&P Global Ratings' subprime auto loan ABS static index are rising and matching levels reported during the 2007-2009 recession. With just under two years of performance, the 2015 vintage at month 21 has cumulative net losses of 8.8% -- a 19% increase from 7.4% for the 2014 vintage and in line with 8.9% for the 2007 vintage at the same point.
This is sounding alarm bells, as auto loan debt reached $1.19 trillion in second-quarter 2017, according to the Federal Reserve. However, of that amount, only $100 billion backs S&P Global Ratings-rated retail auto loan ABS.
And while the Fed estimates that $119 billion in subprime auto loans was written in 2016, we estimate that only about 19% of those loans were securitized, indicating that portfolio lenders hold a large portion of the exposure.
A report published today by S&P Global Ratings looks at the conditions that have revived growth in the subprime auto finance market since 2009, including vibrant capital markets, origination growth, and new vehicle sales, demonstrating that the market follows the economic cycle. Accordingly, the subprime auto loan ABS market has weathered two downturns over the past two decades, and it has since evolved.
Additionally, subprime auto loan ABS transactions' high credit enhancement levels and other structural features have supported stable ratings. Since 1991, there have been only two defaults on S&P Global Ratings-rated subprime auto loan ABS (both on 'BB' rated subordinated classes), and from 2004 through Aug. 31, 2017, there have been 881 upgrades and no defaults or downgrades.
And while the subprime auto lending sector currently faces a number of headwinds, including intense competition, lower recovery rates, a shifting macro environment, and increased regulatory scrutiny from federal and state agencies, we believe our rating analyses address these risks. In our view, certain subprime auto loan ABS securitizers have started to take corrective measures to stem the rise in losses and address heightened risks.
We published the full report, "After Two Decades On The Road, What's Driving Rating Stability In Subprime Auto Loan ABS?," today on www.globalcreditportal.com and www.capitaliq.com.
The reports are available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a RatingsDirect subscriber, you may purchase copies of these reports by calling (1) 212-438-7280 or sending an e-mail to email@example.com.
Ratings information can also be found on the S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request copies of these reports by contacting the media representative provided.