Auto loan extensions are gravitating back toward pre-pandemic rates, dropping by an average of 55% in May for each of the seven auto asset-backed securitization shelves that reported updated figures, according to an S&P report. The seven shelves represent one-third of the auto ABS shelves’ S&P rates.
Investors should welcome the drops in extension rates, according to the rating agency, which have come months sooner than forecasts predicted. In early May, S&P expected extensions to run higher than normal into June and July.
“The lifting of stay-at-home orders has brought some furloughed employees back to work, and it appears that the government’s economic stimulus and relief efforts are helping consumers maintain the wherewithal with which to service their loans,” the report states.
Three out of the five prime issuers in S&P’s report — Ford Credit, California Republic Bank and CarMax Auto Finance — all reported a 69% drop in extensions from April. Capital One and NMAC also saw reductions in extension rates of 55% and 38%, respectively.
Prime shelves’ extensions now account for just 0.9% to 3.7% of the five prime lenders’ outstanding portfolios, down from April when extensions comprised between 1.9% and 11.8% of outstanding balances.
Subprime lender Santander Consumer USA’s two shelves, SDART and DRIVE, also recorded significant decreases in extension rates. SDART’s extensions fell 45% from April and now account for 12% of the shelf’s total outstanding balance, while DRIVE’s rates likewise dropped 42% to 9.9% of the program’s outstanding balances. SCUSA is the largest subprime ABS issuer in the industry.
Stimulus packages and supplemental financial assistance, such as an additional $600 tacked onto unemployment checks, have helped prop up the national economy in light of the increased unemployment rate. When these programs dwindle, however, it is unclear whether deferrals will spike.
Originally published on Auto Finance News