| NEW YORK
NEW YORK The crisis in risky subprime mortgages
may be bleeding into lower-quality auto loans, Standard &
A slight increase in delinquent payments on subprime auto
loans, or loans to borrowers with damaged credit, may be "an
initial trickle-down of the fallout from the subprime mortgage
crisis," S&P said in a recent report.
Homeowners with subprime mortgages may face difficulty
making payments on auto loans as interest rates on their
adjustable-rate mortgages reset higher.
Borrowers faced with resetting home loans may have "less
cash flow available for other expenses, including auto loan
payments," S&P analyst Mark Risi said.
Securities backed by subprime mortgages have sunk in value
in recent weeks as investors have grown worried about rising
delinquencies and their potential impact on the broader U.S.
Some investors fear that the subprime mortgage crisis could
spread to higher-rated mortgages, or even other sectors, like
"With the subprime problems not going away and actually
looking like they are spilling over into other subprime lending
areas like auto loans, people are looking for ghosts," said Joe
Francomano, vice president of foreign exchange at Erste Bank in
So far, even top-rated subprime mortgage securities have
been well-insulated from losses, providing a safe haven for
But S&P's report, published on March 22, suggests that some
subprime auto loan borrowers may already be feeling an impact.
"For the subprime sector, 60-plus-day delinquencies (on
2005 loans) once again moved above the levels seen in the 2003
and 2004 vintages after a steady five-month increase," S&P said
in the report.
Another factor that could be prompting delinquencies is
that some subprime auto lenders like Capital One Financial
Corp. (COF.N) have relaxed their standards for the type of
loans they will underwrite, S&P's Risi said.
But the fallout from deterioration in the U.S. subprime
mortgage industry may ultimately be limited for auto loans
because a majority of subprime auto borrowers are renters, not
homeowners, Risi said.
Higher-rated or "prime" auto loans, like prime mortgages,
are still performing well, he added.
S&P has also remained fairly comfortable with its ratings
on auto loan securitizations.
"After a record 91 upgrades on auto loan securitizations in
2006, the first two months of 2007 saw 13 ratings raised,
compared with just seven in the entire first quarter of 2006,"
Risi said. The 13 upgrades affected 10 prime auto loan deals.
There have been no downgrades on auto loan transactions since