S&P Global Ratings spots significant net-loss improvements in both prime & subprime
Experian’s Q1 2021 State of the Automotive Finance Market report illuminated many attributes about the contracts originated during the opening quarter of the year, including how outstanding balances now are approaching $1.3 trillion as well as metrics based on geography.
This week, S&P Global Ratings shared insights about more seasoned paper, discussing how payments tracked in March as well as the depth deferrals and other accommodations still are being used.
Some of the most positive developments from U.S. auto loan asset-backed securities (ABS) sector’s performance for March were connected with net losses.
S&P Global Ratings reported that prime net losses came in with the lowest rate in its data history, which goes back to January 2006. And analysts added subprime losses declined to their second-lowest level.
“Lower losses were attributable to record-high recovery rates stemming from exceptionally strong used vehicle values,” analysts said in a news release.
And here’s more positive news for finance companies.
S&P Global Ratings said the prime 60-plus-day delinquency rate was the lowest delinquency level on record and subprime late payments fell to their lowest March levels since 2013.
Analysts explained the delinquency trends reflect the latest round of government stimulus checks, tax refunds and improving employment conditions.
“We expect the level to rise after tax refunds and federal stimulus checks have been spent and once enhanced unemployment pay of $300 ends in September or earlier,” they said.
Looking forward from another viewpoint, S&P Global Ratings indicated that prime contracts securitized during the first quarter of this year appeared “slightly weaker” than those in 2020 and 2019, while subprime paper looked “slightly stronger.”
Closer look at accommodations
In another news release, S&P Global Ratings determined that extensions declined for the third consecutive month.
In March, analysts said extensions on paper in public asset-backed securities (ABS) fell to levels consistent with those of early 2020 before the economic fallout from the pandemic, when they were a fraction of March 2020's levels when lenders started to provide pandemic-related concessions.
For the public prime pools analysts track using Reg AB II loan level data, S&P Global Ratings indicated the monthly average extension rate decreased 6 basis points to 0.34% from 0.40% in February and 3.75% in March 2020.
For public subprime pools, analysts found the rate dropped 60 basis to 1.80% from 2.40% in February and 6.82% in March 2020.
“We attribute the improvement to the latest round of stimulus checks that were paid in March and the continued economic recovery, as well as to the boost from tax refunds. In March, 770,000 jobs were added, and unemployment decreased slightly to 6.0% from 6.2%,” S&P Global Ratings said.
“We believe that ongoing federal aid and tax refunds along with better employment conditions have helped obligors not only remain current on their obligations but also catch up on late payments,” the firm continued.
S&P Global Ratings added that public prime extensions are now lower than the January 2020 reading of 0.40% and only slightly higher than February 2020 mark of 0.32%.
Meanwhile, public subprime extensions are also lower than the January 2020 reading of 2.00%, but somewhat higher than the February 2020 mark of 1.53%, according to S&P Global Ratings.
Finally, and again in the prime space, S&P Global Ratings pointed out that the only state in the top 10 that reported a meaningful increase in extension rates from February was Texas, which rose 13 basis points from 0.65%.
“We indicated last month that we were surprised that Texas’ extensions were down in February from 0.70% in January despite the power outages in the state caused by freezing temperatures, as well as the spike in their heating costs. It seems that this occurrence affected its March performance, but only to a slight degree,” analysts said.
“Our newer analysis that tracks extensions by the month in which the first 2020 extension was granted revealed that the April prime and subprime cohorts (the peak month of extensions) have incurred 2.4% and 9.0% in cumulative charge-offs (on a unit basis), respectively,” analysts went on to say.