NEW YORK and CHICAGO — Fitch Ratings contends that loosening
underwriting standards and higher funding costs have led auto lenders to
increasingly extend credit to subprime consumers.

However, analysts view the higher propensity to lend to "weaker"
borrowers as a "relative" normalization in credit metrics, seen previously with
the 2004 through 2006 vintages.

Fitch recapped Experian's data that noted a gain of 10.6
percent year-over-year in new financing of subprime auto loans and a 19.2-percnet
jump in deep subprime. Experian said banks have extended close to 36.0 percent
of loans to nonprime borrowers in the second quarter, a 2.0-percent increase year-over-year.

Analysts also pointed out lenders' auto loan portfolios
continued to grow through the second quarter, "despite sustained deleveraging
in household balance sheets."

According to a report the Federal Reserve Bank, the number
of newly originated auto loans returned to pre-crisis levels amounting to $92
billion in second quarter versus $82 billion in the second quarter of last
year.

"We expect new auto loan originations to persist through the
subsequent quarter given greater vehicle financing options and heightened consumer
demand for automobiles," Fitch analysts said.

"However, with rapid growth in the number of new auto loans,
the prospect of pronounced aggressive underwriting standards remains plausible,"
they continued.

Presently, Fitch indicated that it's observing "marginally
lower" average credit scores year-over-year on most auto loan ABS securitized
pools in the latter half of last year and this year.

"We predict the 2012 and 2013 vintage performance will be
slightly weaker relative to the strong 2009—2011 vintages, as the latter
vintages contained the highest credit quality obligors, shorter loan terms and
lower loan-to-value ratios," Fitch said.

"Fitch expects cumulative net loss proxies on auto loan ABS
transactions to increase in the event that we observe materially weaker
securitized pools, unless higher credit enhancement levels are present to
offset risk attached to weaker collateral characteristics," analysts went on to
say.

Commentary and analysis like what Fitch just offered is what's
on tap for the SubPrime Forum, the newest edition to Used Car Week.

The SubPrime Forum, which is being orchestrated in
conjunction with the NAF Association, is set for Nov. 12 and 13 at the
Manchester Grand Hyatt in San Diego. Among some of the experts to be on hand
are:

—Ian Anderson, president of Westlake Financial Services

—Charles Bradley Jr., chief executive officer of Consumer
Portfolio Services

—Steve Hall, president and CEO of DriversSelect

—Jonathan Banks, NADA Used Car Guide

—Mary Benaknin, Mile One Automotive

—Jeff Bunch, Black Book Lender Solutions

—Melinda Zabritski, Experian Automotive

More details are available at www.usedcarweek.biz.

Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.


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