CLEVELAND -

Like Equifax, KeyBanc Capital Markets also noticed the recent Fitch Ratings report about U.S. subprime auto ABS delinquencies jumping to levels not seen in almost 20 years. To gather more perspective on the development, KeyBanc used its February dealer survey to obtain the viewpoints of dealerships.

Contrary to investor concerns, KeyBanc reported that financing availability in the auto market remains “healthy.” Why? The survey showed 83 percent of respondents reported intact overall financing availability.

Furthermore, 90 percent of dealers survey by KeyBanc reported “intact or improving” subprime auto financing.

The dealer survey results coupled with its own analysis prompted KeyBanc to mention three reasons why its experts have positive view on auto financing as well as subprime lending. Those points included:

— Auto default rates have improved since 2011, remain relatively flat for the past 10 quarters, and should continue to decline

— The quality of subprime financing has improved but volume remains 10 percent below pre-recession peaks despite a 20 percent increase in average transaction prices

— Moderate increase in average loan terms to 65.5 months is more than offset by increased average length of new vehicle ownership to 77.8 months.

“Deeper analysis shows auto loan delinquencies are in part driven by unemployment rates,” KeyBanc said in a separate analysis shared with SubPrime Auto Finance News along with its dealer survey report. “When unemployment rates decline, auto delinquencies decline for a positive correlation of 0.63.

“Therefore, we believe delinquency rates should remain at current levels or improve even as mix of subprime loans continues to increase, driven by improving unemployment rates on positive economic growth outlook,” analysts continued.

Earlier this month, Fitch analysts indicated subprime delinquencies of 60 days or more hit 5.16 percent for February reporting, marking the highest level observed since October 1996 (5.96 percent). During the most recent recession, the firm indicated delinquencies peaked at 5.04 percent in January 1999.

Equifax chief economist Amy Crews Cutts discussed the Fitch findings with SubPrime Auto Finance News, emphasizing a careful approach to the firm’s look at recent data.

“I wanted to be very cautious in this, but I feel there was a tremendous overreaction to what happened in the Fitch report as opposed to the bigger picture,” Cutts said. “Part of the bigger picture is that I do believe that there is an appropriate amount of lending that should happen in the marketplace. The trick is knowing when you are doing it right, given the business cycle, given the technology that’s available.”

KeyBanc also referenced another Equifax analysis about the subprime market that bolsters its view of that credit segment.

Early last year, Equifax generated a report and determined that over a three-year time period, those consumers with deep subprime credit scores that originated a subprime auto loan showed, in aggregate, a significant increase in their credit score.

In fact, analysts highlighted those consumers improved their credit score by a median of 52 points, which is a 62.5-percent improvement over the median score change of the group that did not take out a loan.

KeyBanc pointed to those findings and said in its recent report, “The quality of subprime lending (FICO scores below 620) has improved as today’s subprime consumer is more reliable and deep subprime consumers who have obtained an auto loan improved their scores by more than 50 basis points on average over a three-year period, thus lowering their potential credit risk relative to the interest rate they are paying

“History has shown auto loans to be the most resilient in an economic downturn,” KeyBanc added.