Loan-to-Value Ratios Rise in ABS Sector

By Staff Writer December 06, 2022 350

KBRA has released research assessing changes in the auto loan asset-backed security sector.

The auto loan asset-backed security (ABS) sector has shown both stability and volatility over the past decade. This report evaluates how auto loan ABS attributes such as loan-to-value (LTV) ratios, initial balances, terms, annual percentage rates (APR), and monthly payments have evolved over this time, with a focus on performance since the pandemic’s onset. KBRA assesses these attributes in relation to four FICO score-based credit categories: prime, near prime, mid subprime, and deep subprime.

Key Takeaways

  • LTV ratios have generally trended upward toward pre-pandemic levels this year after declining for some time due to increasing vehicle values beginning in Q2 2020, as well as higher borrower down payment amounts.
  • Unsurprisingly, weighted average (WA) initial loan balances have also trended upward. This has occurred across a wide range of FICO scores, with the exception of the deep subprime category, where loan balances have actually dipped by approximately 1% as lenders tighten origination standards.
  • For those same deep subprime borrowers, loan terms have also decreased to eight-year lows. Meanwhile, loan terms for obligors with FICO scores above 550 have trended upward modestly and are above pre-pandemic levels.
  • Despite rising interest rates, APRs charged to borrowers have remained steady through October 2022, as competitive pressures in the industry made it challenging for lenders to pass higher issuance costs to consumers. However, KBRA expects this trend to change as rates continue rising and credit performance softens.
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Last modified on Monday, 12 December 2022 13:51