NEW YORK — The newest report from Moody's Investors Service
detailed the three factors that could lead to higher credit losses for subprime
auto lending.

Analysts mentioned risk factors such as weakening loan
credit, stiff competition among originators and readily available funding for
asset-backed securities (ABS) all portend to these potential losses.

These conclusions came according to a new report titled, "Risk
Factors Still on Rise for U.S. Subprime Auto ABS," which followed a June Moody's
report on increasing risks in the subprime auto lending market, titled "U.S.
Subprime Auto Lending Market Harkens Back to 1990s."

Moody's highlighted that its new report cites a number of
factors affecting the rise in subprime auto credit risk, including more private
equity money entering the market that will further intensify increasing
competition from banks and credit unions.

"The increased competition among subprime lenders is
resulting in more loans to borrowers of weaker credit quality," said Peter
McNally, a Moody's vice president and co-author of the report.

"The credit weakening has been gradual so far, so losses
won't spike immediately," McNally continued. "But more borrowers are going to
default eventually, as originations continue to grow."

Subprime lending volumes, which bottomed out in 2009 in the
wake of the financial crisis, have more than doubled since then, according to
Moody's

McNally also pointed out that the ABS market's strength also
increases competition among lenders because it facilitates lenders' desire to
grow and increase market share.

He went on to say that investor appetite for subprime auto
ABS has allowed issuers to offer increasingly lower spreads on senior bonds and
back a growing number of transactions with prefunded loan pools, a trend that
will weaken credit in securitizations because these loans are unseasoned.

"A more precipitous weakening in credit quality will drive
losses up more quickly to levels that will stress lenders' servicing ability
and may eventually threaten their solvency," McNally said.

"If that happens, originator failures can cascade quickly
because their funding sources will pull back when they lose confidence in the
market," he added.

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