Fitch: US Consumers Fuel Credit Card and Auto ABS Stability

NEW YORK--(BUSINESS WIRE)-- The improving US macroeconomic factors will continue to bolster consumer asset-backed security (ABS) performance, Fitch Ratings says. We expect credit card ABS metrics to continue to hold steady in the short term while remaining near their all-time records. Fitch believes auto ABS loss rates will rise in 2015 but stay within healthy levels at or near 1.0%.

In our view, the trend in unemployment is a strong macroeconomic indicator for consumer ABS. The Bureau of Labor Statistics reported unemployment has remained steady for the past two months at 5.5%. According to the U.S. Department of Labor, jobless claims reached a 15-year low last month but rose slightly by 12,000 to a seasonally adjusted 294,000 this week. The four-week moving average was 282,750, up only 250 from the previous week's revised average.

However, credit card ABS will see small changes and should maintain its streak of strong performance. We expect both performance of prime gross yield and monthly payment rate (MPR) to increase, in line with seasonal trends. Sixty-plus day delinquencies performance is likely to remain stable; we expect chargeoffs to remain near record lows.

Retail chargeoffs and 60+ day delinquencies are expected to improve and decline from previous month's levels while retail gross yield and MPR are expected to slip slightly compared to last month.

Auto ABS metrics may normalize over the mid term. Over the next two months, both the prime and subprime sectors will benefit from tax refunds. However, Fitch believes this trend will reverse and losses in both sectors will creep up throughout most of 2015.

Softer asset performance will be driven in principal by weaker used vehicle values and higher loss severity. The wholesale vehicle market will come under pressure from rising off-lease and trade-in volumes, which Fitch expects to rise over 10% in 2015 versus 2014, and dent used vehicle values.

Additionally, weaker collateral characteristics in securitized pools will also result in weaker asset performance. Pools with longer loan terms and higher loan-to-values combined with certain issuers including greater levels of borrowers with weaker credit scores will also contribute to softer asset performance in 2015. Despite this, we expect prime loss rates to still be well within historical levels and within range of the solid 2005-2006 period.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Fitch Ratings
Hylton Heard, +1-212-908-0214
Senior Director
U.S. Auto ABS
33 Whitehall Street
New York, NY
or
Herman Poon, +1-212-908-0847
Director
U.S. Credit Card ABS
or
Rob Rowan, +1-212-908-9159
Senior Director
Fitch Wire
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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