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Loan tapes suggest auto trends are 'in line'

Tuesday 14 March 2017 16:57 London/ 11.57 New York/ 00.57 (+ 1 day) Tokyo

Loan and pool level stratifications in US auto ABS show credit trends in line with economic expansion and the credit cycle. Rising rates and increasing lender competition could alter this dynamic, according to a new JPMorgan study, which analyses early stage delinquencies and loan modifications across 10 auto loan tapes from seven pools (averaging 60,000 loans per tape).

The study initially examines the updated monthly tapes from Ford, Ally and Carmax. It finds that 30-plus day delinquencies are low after one month across ALLYA 2017-1, CARMX 2017-1 and FORDO 2017-A at 0.51%, 0.61% and 0.42% respectively. JPMorgan ABS analysts note that no loans have defaulted or been repurchased.

However, when 30-plus day delinquencies are broken down by weighted average coupon (WAC) and loan-to-value (LTV) buckets, early delinquencies appear in the higher WAC and LTV buckets as expected, with a spike in delinquencies when the LTV moves from 81%-100% to 101%-120% on the ALLYA and CARMX pools.

The JPMorgan analysts note: "For ALLYA, 30-plus delinquencies for the 10%-15% WAC segment increased from 1.07% to 1.58% when moving from 81%-100% LTV to 101%-120% LTV. Similarly, for the 15%-20% WAC segment on the CARMX pool, 30-plus delinquencies increased from 1.96% to 4.30% when moving across the same LTV range. For the FORDO deal, this trend was not as prominent."

Additionally, early stage delinquencies tend to be higher on loans with higher WACs, with the most notable difference between the sub-10% and greater than 10% loans. The analysts find that, "for the 101%-120% LTV segment, as we move from the 5%-10% to 10-15% WAC bucket, 30-plus delinquencies increased from 0.81% to 1.58% on ALLYA and 0.38% to 0.77% on CARMX. On FORDO's 81%-100% LTV segment, 30-plus delinquencies increased from 0.75% in the 5%-10% bucket to 1.72% in the 10%-15% bucket."

The majority of delinquencies are in the 31-60 day range, although 31 loans across the three pools have transitioned to 60-plus delinquent, with invalidated payment as the most likely reason for the jump. The analysts find also that based on one month of seasoning, there is no material difference in early stage delinquencies for new versus used cars financed.

However, there are differences in credit score buckets, with new vehicles backing the ALLYA shelf and the very high credit score borrowers having the lowest delinquencies. On the CARMX deal, there is a large jump in delinquencies from 0.12% in the 700-749 bucket to 2.71% in the <599 bucket.

Four key types of auto loan modifications are reported in the tapes: extension, term, APR and principal. The majority of loan modifications in ALLYA, CARMX and FORDO are extensions, with a few 'other' modifications in FORDO, such as modifications to monthly payment due date.

In terms of collateral stratifications, the analysts point to mostly stable quality, but with some issuer variation over the last five quarters. In prime auto, WACs increased from 3.78% in 1Q16 to 4.21% 1Q17, with a decline in FICO from 750 to 736 between 3Q15 to 1Q17.

Weighted average LTV and original term are mainly unchanged over time at 99% and 65 months in 1Q17 respectively, while the percentage of used vehicles has increased from 25% in 1Q16 to 37% in 1Q17. WACs have been increasing across some issuer pools, including Ally, which has seen WACs rise from 4.31% 1Q16 to 5.26% in 1Q17. For other auto deals such as CRART, WAC has increased from 6.82% 1Q16 to 7.23% 1Q17, with the number of used cars increasing from 70% to 75% in 1Q17.

In Ford's revolving (FORDR) and non-revolving (FORDO) deals, WACs have been declining to 2.61% in 1Q17 for FORDO and 2.65% in 4Q16 from over 3% in 1Q16 for both shelves. WACs on Honda (HAROT) deals declined from 2.17% in 3Q16 to 2.09% in 4Q16 and the analysts expects higher loan rates eventually with rates on the rise.

On the non-prime side, WAC stands at 17.25% in 1Q17, compared to 16.30% in 1Q16 and 17.47% in 4Q16. The analysts note that the FICO, LTV, original term and used percentages haven't changed materially over the past five quarters. The percentage of loans in low FICO buckets hasn't changed significantly across the time period across most issuers either.

The third quarter saw the highest collateral quality in AFIN's 2016-2 and 2016-3 pools, with WACs of <10% and average FICO of 633. WACs are varied in deeper subprime, with the AMCAR pools increasing from 12.21% in 1Q16 to 12.71% in 1Q17, for example. For the Exeter (EART) pools, WAC has also increased from from 20.17% in 1Q16 to 20.78% in 1Q17, while FICOs above 540 have increased along with a decline in used cars.

Conversely, DRIVE and SDART pools have seen declines in WAC. WAC, LTV and used percentage for the former shelf were 18.93%, 108% and 66% respectively in 1Q17 compared to 21.09%, 112% and 73% in 1Q16, according to JPMorgan figures. SDART saw WACs decline from 16% in 1Q16 to 15.60% in 1Q17 and the weighted average FICO score increase to 609 from 600 in 1Q16.

14/03/2017 16:57:17