U.S. new automobile and light truck sales and loan originationshave returned to pre-financial crisis levels, according to a DBRS report.
The rating agency found that the overall prime versus subprimedistribution has been consistent, and the distribution saw a decline of originationsto obligors with lower credit score tiers.
"It is true that collateral in U.S. ABS transactions hasdemonstrated a trend toward higher risk when [loan-to-value ratio], loan term andaverage loan amount are taken into account; however, while the ABS pools appearto show signs of higher risk, those expectations have been incorporated into thecash flow assumptions and the resulting credit enhancements have increased to offsetthis trend," DBRS said.
The rating agency noted an overall increase in cumulative netloss expectations since 2013, but it also said investors are protected against theimpact.
"The sufficiency of the ABS structures used in the subprimeauto sector has thus far demonstrated reasonable stability with increasing creditprotection as transactions pay down. The deleveraging of the structures over timeabsolves concerns related to reasonable variations in initial expectations,"DBRS explained.
Rising transaction costs and performance-related indicators areamong the additional factors that will impact both the U.S. auto loan ABS marketand the U.S. auto loan sector, according to the rating agency.