Players in the subprime auto market are expecting some deterioration in 2021 as concerns shift from the economic uncertainty brought about by the pandemic, to regulatory uncertainty ushered in with the new presidential administration, according to the third annual market study released by Davis+Gilbert LLP’s Credit Chronometer.
The report stated the potential for heightened regulatory scrutiny is weighing on market players.
Authored by Davis+Gilbert partner, Joeseph Cioffi, the Credit Chronometer report “Moving On from 2020, a 360o Market Study of Subprime Auto Participants” summarizes the results of an anonymous study of over 100 originators, investors, servicers, trustees and other securitization market participants, on topics such as credit quality, the sufficiency of credit enhancement protections and the ability to obtain and maintain desired credit ratings.
With a new administration has come a new concern, the report showed. Participants see potential regulatory enforcement or new regulations as potentially dampening enthusiasm for new originations and ABS issuances, according to the report.
“Throughout the pandemic, participants have remained cautiously optimistic and their confidence in deal structures and credit extensions remains relatively strong, but the potential for new regulation is putting a chill on the sector,” said Cioffi.
Key findings of the study include:
- Fewer participants expect downgrades.
- Anticipation remains high for the same level or more credit extensions going forward.
- Rate caps, debt collection limitations, and the CFPB “changing the rules of the game” are market risks weighing on participants.
- Subprime lenders becoming subject to an “ability to pay” law is a major concern.
- A majority of investors expect the pandemic to have a lasting negative effect on their participation in subprime auto securitizations.
The comprehensive report compares 2021 survey results to 2020 responses, tracking evolving opinions toward credit enhancement, credit quality and deal performance.