Dealers Pleased as Loss Rates for Lenders Normalizes

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Subprime News

Dete­ri­o­ra­tion in loss and delin­quency rates pro­duced by the largest U.S. auto lenders sig­nals an inflec­tion point in auto loan asset qual­ity which will help deal­ers approve more appli­cants in the sub­prime segment.

Find out more about the lender banks included and the lat­est Fitch report.

Fitch Rat­ings con­tends mod­est year-over-year dete­ri­o­ra­tion in loss and delin­quency rates pro­duced by the largest U.S. auto lenders sig­nals an inflec­tion point in auto loan asset quality.

Ana­lysts said in their spe­cial quar­terly report “U.S. Auto Asset Qual­ity Review,” that they “expect asset qual­ity trends to nor­mal­ize later this year and into 2014 as under­writ­ing stan­dards con­tinue to ease.”

Fitch explained the aver­age U.S. vehi­cle loan/lease net loss rate for issuers cov­ered in its report came in at 0.68 per­cent dur­ing the sec­ond quar­ter, down 26 basis points from the prior quar­ter. Ana­lyst indi­cated the trend reflected “the sea­son­ally favor­able pay­ment trends typ­i­cally expe­ri­enced in the sec­ond quar­ter of each year due to tax refunds.”

How­ever, Fitch noticed aver­age net loss rate and aver­age 30-day delin­quen­cies increased year-over-year, by 17 and 45 basis points, respec­tively. Ana­lysts reit­er­ated the trends are “sig­nal­ing that credit per­for­mance has reached an inflec­tion point with future loss rates expected to increase and revert to more nor­mal­ized levels.”

To com­pile its analy­sis, Fitch reviewed the quar­terly per­for­mances of:

  • Ally Finan­cial
  • Toy­ota Motor Credit
  • Ford Motor Credit
  • JPMor­gan Chase
  • Wells Fargo
  • Cap­i­tal One
  • GM Finan­cial
  • Hunt­ing­ton

“Lenders seem to be more will­ing to relax under­writ­ing stan­dards against a back­drop of pos­i­tive eco­nomic fac­tors such as lower unem­ploy­ment, higher hous­ing prices and higher con­sumer con­fi­dence,” Fitch ana­lysts said.

Accord­ing to the Fed­eral Reserve, sea­son­ally adjusted non­re­volv­ing credit, which includes auto and stu­dent loans, increased to $1.98 tril­lion, up an annu­al­ized rate of 7.9 per­cent sequentially.

“The growth is con­sis­tent with the level of new vehi­cle sales. More­over, healthy growth trends in non­re­volv­ing credit should, to some extent, sup­port prices of used vehi­cles,” Fitch said.

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