Dealers Pleased as Loss Rates for Lenders Normalizes

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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