NEW YORK — In two recent reports, Fitch Ratings reviewed the auto asset-backed securities market and discovered that the 2007 securitization vintage has posted losses that are now considered the highest on record.

"To date, CNLs on the 2007 prime auto ABS vintage has outpaced those of prior years, including 2001 and 2002, which was during a recessionary period," officials explained in their latest quarterly report.

"However, despite this weak vintage performance, Fitch does not expect a significant number of negative rating actions," the company noted.

In fact, Fitch said that it has witnessed performance significantly outside of initial expectations in a few domestic issuers, particularly Chrysler Financial.

Throughout 2006 and 2007, Fitch reported that many loan originators decided to loosen underwriting guidelines and expand risk thresholds to include higher loan-to-value ratios, lower credit scores, higher payment-to-income ratios and longer loan terms.

"These relaxed standards, coupled with general economic deterioration, elevated unemployment rates and deflated wholesale vehicle values, have contributed to the poor performance of the 2007 vintage," officials said in their special report.

Through the first 16 months, losses on these vintages have reached 1.43 percent, significantly above the 1 percent saw through the same period on the 2001 vintages.

"Fitch expects that losses on the 2007 vintage will continue to exceed those of the previous years observed and that CNLs will ultimately reach 3 to 3.5 percent," executives stated.

Perhaps not surprisingly, the company also found that losses on 2007 domestic captive ABS "have ballooned above historical levels."

"CNL for domestic captives has reached 1.31 percent through the first 16 months, compared to the previous high of 0.73 percent realized after the first 16 months in the 2001 vintage," the Fitch highlighted.

Basically, after seeing record low loss performance in 2005, Fitch indicated that some domestic issuers loosened underwriting standards, which resulted in weaker pools with higher original terms and lower credit quality borrowers.

"Compounding the weaker collateral characteristics of these pools, the transactions were then issued shortly before the U.S. entered recession and have faced turbulent economic times during nearly their entire time outstanding," officials stressed.

Looking at foreign captives, Fitch found that their ABS has also performed "poorer than historical standards."

However, overall, foreign captive vintages appeared to hold up better when compared to domestic captive vintages.

Why? Most likely because many domestic captives had heavy concentrations of truck and SUV collateral, in addition to a few of these financial institutions aggressively expanding risk thresholds to make vehicles more affordable and bolster sales.

Looking ahead, the company noted, "While the 2008 prime auto loan ABS vintage is still slightly too young to adequately forecast, losses are tracking similar to the 2007 vintage. Through the first five months of performance, CNLs have reached 0.23 percent for the prime 2008 vintage, compared with 0.24 percent for 2007.

"Fitch anticipated that losses on 2008 vintage transactions would be higher than previous years' transactions for similar collateral due to the difficult economic environment and strain on consumers," officials said.

Coming back to the company's quarterly report, Fitch indicated that its prime 60-day plus delinquency index hit 0.87 percent earlier this year before dropping down to 0.69 percent in March. Overall, March delinquencies were 9.5 percent higher than last year.

Prime annualized net losses hit a historical high of 2.23 percent in January, but then improved a bit, declining to 2.08 percent in March.

Meanwhile, reviewing subprime ABS, Fitch said that 60-plus day delinquency index came in at 3.65 percent in March, 25 percent higher than the prior year.

"Despite posting a 23-percent drop in March over February's level, the delinquency rate was still within range of the historical highs experienced in the mid '90s," officials highlighted.

Subprime ANLs closed the quarter at 8.78 percent, down 11 percent from the end of 2008, but 19 percent higher than the previous year.

Chrysler ABS

Fitch also voiced some concern over Chrysler Financial, saying the bankruptcy filing may hurt the performance of the captive's outstanding auto loan and dealer floor plan ABS, in addition to negatively impacting the ABS issued by Dollar Thrifty Automotive Group.

"Fitch is particularly concerned with the impact the Chrysler BK filing may have on vehicle values for all transactions. Additional concerns include the financial and operating status of CF, given its role as primary servicer under the loan and DF ABS," officials said.

"Furthermore, Chrysler's ability to repurchase program vehicles is a risk for the rental car transactions. Despite this, no immediate rating actions are being contemplated by Fitch on CF's outstanding auto loan transactions at this time," executives stated.