Market Overview

Kroll Bond Rating Agency Publishes New Research Report - "Shifting Gears: Analysis of Auto Loan & ABS Trends"


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    affirmations, zero downgrades, and withdrawn the rating on 76 classes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).

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