High-Risk Auto Loan Losses Rise

Auto loan losses at companies lending to high-risk borrowers rose 50% in June compared with a year ago, although the rate of increase slowed in the year, Moody’s Investment Services Inc. said

Write-off rates increased in June, reflecting both higher losses in older loan pools and above-average losses among new loans, according to Moody’s survey of 106 securities backed by a total $18 billion in sub-prime auto loans.

“Recently securitized pools have targeted riskier borrowers. These pools have been performing below expectations,” said Moody’s senior analyst Richard Cantor.

Moody’s analyst Jay Eisbruck said he expects auto loan credit quality to worsen through the end of the year, but at a slower rate of decline than last year.

“We’re seeing a bit of a decline in performance of these loans,” Eisbruck said, with most loans booked in 1995 and 1996, a period of increased competition when companies lowered underwriting standards.

Those who invest in asset-backed securities are generally protected, Moody’s said, because the notes are insured. At the same time, earnings of companies that sell their loans to investors are closely bound to the performance of their securitized loan pools because they’re a major source of revenue.

Moody’s found losses increased 25% to 50% in some loan pools, including those issued by Consumer Portfolio Services Inc., First Merchants Acceptance Corp. and Union Acceptance Corp. The changes were attributed to accounting changes and not credit quality.