Fitch's U.S. Auto Loan Level Analysis Yields Surprises.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- A recent study by Fitch Ratings' Quantitative Financial Research (QFR QFR Quick File Rename QFR Quality Financial Reporting QFR Quantitative Financial Research QFR Question for the Record QFR Quality Fitness Review QFR Quarterly Force Revision ) Group confirmed that the most influential risk driving factors in U.S. auto loan defaults are loan-to-value (LTV LTV See: Loan-to-value ratio ) ratio and credit bureau score. Interestingly, however, the study also yielded some surprises, particularly as it relates to two other important variables, namely: new vs. used vehicle indicator and subvented vs. non-subvented loans. Fitch's loan level default risk analysis demonstrated that the new/used (N/U N/U Network/User ) indicator is linked most closely with borrower income. 'The results clearly show that the N/U indicator is an endogenous variable Endogenous variable A value determined within the context of a model. Related: Exogenous variable. that strongly reflects the level of borrower's income,' said QFR Managing Director Ahmet Kocagil, PhD. Fitch also noted adverse selection in subvented loans, which are loans originated through manufacturer campaigns with low borrower annual percentage rates (APRs) that usually apply to low credit risk borrowers. 'While subvented loans are generally perceived as lower risk, they represented a higher than anticipated portion of the overall defaults primarily attributable to those borrowers with lower credit bureau scores,' said ABS Director Ebru Demir. While the findings of the study are interesting, Fitch notes the limitations of the data which represent roughly 500,000 auto loans originated in the US in the first quarter of 2000. Fitch encourages issuers to share loan level performance information in order to refine the analysis of the drivers of default risk and loss severity. 'Empirical Examination of Drivers of Default Risk in Prime Auto Loans' is available on the Fitch Ratings web site at www.fitchratings.com. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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