Delinquencies on U.S. prime and subprime auto asset-backed securities (ABS) dropped in March following the route of seasonal patterns posting a second consecutive monthly decline in both sectors, according to the latest update from Fitch Ratings.
Prime annualized net losses (ANL) ticked up slightly in March while the subprime index exhibited a 13-percent improvement. However, auto ABS performance remains pressured from many areas despite the improvements in March. Evidence of this includes the noticeable year-over-year jump in ANL rates posted in March despite a slowdown in losses during the month.
Delinquencies of 60 days or more on prime auto ABS were at 0.63 percent in March, a 16-percent drop over February, but were 34 percent higher vs. March 2007. ANL rose by 1.5 percent in March to 1.35 percent vs. February’s level. March’s ANL rate was 73 percent higher than in March 2007, the highest year-over-year difference ever recorded by the index.
In the subprime sector, the delinquency index recorded the second consecutive drop in March exhibiting a 22-percent decline to 2.93 percent, vs. February’s rate. Delinquencies were 33 percent higher in March vs. the same period in 2007. Subprime ANL were 7.39 percent in March posting a 13.5-percent decline over February but were 55.6 percent higher than the level recorded in March of 2007. March’s ANL rate remains well above levels recorded in 2005-2007, but was below levels produced in 2002-2004.
Despite historically elevated delinquency and loss rates, auto ABS performance continues to perform within Fitch’s original loss expectations. In March, Fitch upgraded two classes of notes in one prime auto ABS transaction. No downgrades have been issued so far in 2008 in either the prime or subprime sectors (this excludes any rating actions related to the insurer financial strength of monoline bond insurance companies). Year-to-date, Fitch has upgraded eight classes of notes on U.S. auto ABS transactions, compared to 26 upgrades for the same period in 2007.
Fitch’s auto ABS indexes track a prime and subprime portfolio totaling approximately $68 billion, of which 65 percent comprises prime auto ABS and the remaining 35 percent subprime.