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Securitization of Car Loans Plummet

The issuance of securities backed by prime auto loans plummeted by 23 percent in the first five months of 2013, data from Standard and Poor’s (S&P) showed.

The securitization of auto loans made to US prime borrowers fell to $17 billion year-to-date from $23 billion in the same period last year.

The results suggest that the decline is brought by alternative sources of cheap funding like unsecured debt and customer deposits that banks, automakers and other lenders are finding.

This decrement is, however, in contrast with the rising securitization of subprime auto loans where lenders have fewer financing options. Subprime issuance advanced to $8 billion from $7 billion last year.

The senior director of auto ABS (asset-backed securities) ratings in S&P, Amy Martin, told the Financial Times (FT) that the issuance of securitized prime car loans had declined as the credit ratings of automakers had improved. She said that issuers become more dependent on securitization as their credit quality deteriorates.

Martin also believes that the decline in the issuance of securities backed by prime car loans is positive as it implies that issuers are having more access to other sources of funding.

Meanwhile, the director in securitized products origination in Barclays, Jonathan Wu, told the FT that the issuance is expected to recover at year-end.

He also explained that some lenders are willing to turn to other sources of funding—even if these are more expensive—because diversity can win them higher credit ratings.

A Wells Fargo analyst, John McElravey, told the FT that they (in Wells Fargo) believe that securitization has become less significant now to most lenders in the prime market. The FT quoted McElravey: “With interest rates at low levels, some lenders may be keeping more loans on balance sheet. Some lenders, such as banks, may need earning assets that offer relatively low credit risk.”

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