The last time a below par Titled Investment Estate Trust, ("TIET"), backed by consumer titled vehicles was put into play by a major automotive financier we would have to visit the 2006-2007 era. Adding insult to injury is the disclosure that the average FICO score of these portfolios is 461? Can that be real or should the underwriters be scrutinized for even approving this buy-here-pay-here type collateralized financial instruments being packaged and sold to investors? A closer examination of the weighted average maturity, ("WAM"), and the weighted average coupon, ("WAC"), will show the true nature of this serialization. This offering should be placed in the creative derivatives offerings and the consumers making the monthly, bi-monthly or weekly payments will surely be searching for a new mode of transportation within 9 months as the bell curve indicates that is the time frame of a seasoned automobile 461 FICO score default. Follow more of the alternatives automotive financing credit enhancements being released this summer in Las Vegas Nevada by Ross Aldridge Consultants at www.keyvantagescore.com.
The upcoming consumer FACT ACT diploma is claimed to add the Credit Enhancement normally reserved for individual Performance Bonds issued by the Registered Bonded Companies touted by the Federal Reserve. As more global market turbulence starts to correct these below par loan packaging will be the tip of the iceberg. Also, watch out for the upcoming Student Loan bubble.
We see pressure on many of the bank stocks even though the so called stress test will only knock off a few regional backs as one of the big 4 financial institutions will absorb the select few that fail.
Santander Consumer USA Inc. has released its first offering on a new platform called Drive Auto Receivables Trust. The new platform is for "deep subprime assets that do not conform to the collateral characteristics of their existing platforms, Santander Drive Auto Receivables Trust [SDART] and Chrysler Capital Auto Receivables Trust," according to a presale report from Standard & Poor's.
The Inaugural securitization (DRIVE 2015-A) is backed by $712 million of auto loan receivables which were originated by SCUSA under its standard credit and underwriting procedures, and will be serviced by SCUSA, according to the report.
The DRIVE-2015-A offering has a weighted average original Fico score of 552, down from 595 in the previous offering through Santander Drive Auto Receivables Trust (SDART 2015-1). SCUSA also uses a proprietary internal credit scoring methodology, which incorporates, among other factors, deal structure variables such as cash down payment, and LTV, payment-to-income, and debt-to-income ratios, according to the report.
The loans in Drive's offering have a weighted average internal score of 461, down from 555 in SDART's previous offering. SCUSA's internal scoring ranges from one to 999, with a score of one indicating a very high predicted likelihood of loss and a score of 999 indicating a very low predicted likelihood of loss.
S&P also determined that SCUSA's managed portfolio performance has weakened with rising delinquencies and net losses.
"Delinquencies for 31 days or more increased to 15.77% at year-end December 2014, compared with 14.84% a year earlier," S&P wrote in the report. "Furthermore, losses rose to 7.39% for 2014, compared with 5.81% in 2013. We believe some of the increase could be attributable to loan growth from prior years (14.62% in 2012 and 30.37% in 2013) as these loans are now reaching their peak loss period."
ACA Also in the Mix
SCUSA's is not the only securitization offering to hit the ABS pipeline as of late. American Credit Acceptance Corp. announced its first securitization for the year on Thursday, backed by $219.3 million of subprime auto loans, according to a presale report from Kroll Bond Ratings Agency.
The loans in the ACAR 2015-1 Trust have a weighted average Fico of 540, down slightly from the WA Fico of 544 in the previous ACAR 2014-4 trust. However, 37.8% of loans in the trust have a Fico score of 500 or lower, according to the presale report. While ACA focuses on lower quality subprime obligors with an average Fico score in the low to mid 500s, "approximately 13.9% of the loans in the ACAR 2015-1 transaction have no Fico score," according to the report.
Although ACA's obligors typically have limited financial means, and negative or nonexistent credit history, Kroll determined that "ACA is experienced in lending to subprime obligors and has demonstrated relatively stable historical loss performance. This is due in part to the high absolute loss levels and also due to ACA's ability to originate and service deep subprime obligors."
Both SCUSA and ACA have received regulatory attention from the Department of Justice for practices related to subprime lending. SCUSA was issued a subpoena from the DOJ in August 2014 for requesting documents and communications that, among other things, relate to the underwriting and securitization of nonprime auto loans since 2007. Most recently, the company agreed to pay a record $9.35 million to resolve a DOJ lawsuit alleging that it violated the Servicemembers Civil Relief Act.
ACA revealed in the presale report that the DOJ had issued a subpoena for information regarding possible violations of the Financial Institutions Reform, Recovery and Enforcement Act, and requested documents regarding ACA's auto lending and related securitization activities. The report did not state when ACA had received the subpoena, but that it "is cooperating with these requests, according to the report."
Kroll also wrote that although the Consumer Financial Protection Bureau and the Federal Trade Commission have also been actively investigating subprime lenders, they have not yet investigated ACA.
"The company expects to be included in the CFPB's supervision of auto lenders going forward," Kroll wrote in the report. "And continues to enhance its legal and compliance departments."
We will stay with SKF until the 55.50 mark is hit. We recommend buying at dips and the global stock market rollercoaster is just taking off from the station.
Disclosure: The author is long SKF.