A new report suggests that subprime auto bond delinquencies have reached the highest in 20 years.
According to Fitch Ratings, delinquencies on subprime auto debt merged into securities hit a level unseen since October 1996. The data suggest that the trend of late payments continued in the month of February.
The report shows that auto loan borrowers who were more than 60 days late in February jumped 11.6 percent from the same time a year ago. This means the delinquency rate stands at 5.16 percent, up from the economic collapse delinquency rate of 5.04 percent.
Small and mid-sized subprime lenders need access to the securitization market. If investors block access to that market over concerns that consumers can’t make payments then these firms will eventually go out of business.
Kevin Duignan, global head of Fitch’s securitization group, told Bloomberg News that investors aren’t too concerned about payments being made in full. The concern, says Duignan, is rather if investors will be worried about inconsistencies regarding high investment-grade ratings.
Delinquency rates have been in the news again (SEE: New report warns of rising delinquency rates amid growing consumer debt levels) because of soaring debt levels. With interest rates expected to climb in the next few years, delinquency rates may rise with it.
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