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TEXT-S&P comments on Sandy's impact on consumer-related ABS
December 10, 2012 / 2:34 PM / 5 years ago

TEXT-S&P comments on Sandy's impact on consumer-related ABS

Dec 10 - Standard & Poor’s Ratings Services today said that its ratings on U.S. consumer-related asset-backed securities (ABS) would likely be unaffected by Hurricane Sandy. Specifically, we examined loans and leases backed by hard collateral in the auto loan, auto lease, manufactured housing, marine, and recreational vehicle sectors.

Based on conversations with issuers and our analysis, we believe that collateral performance could be slightly weaker over the next few months due to Hurricane Sandy. The weaker collateral performance would be reflected in increased delinquency rates and perhaps increased defaults. However, we do not expect any impact on our ratings in the ABS auto loan, auto lease, manufactured housing, marine, or recreational vehicle sectors.

In assessing the impact of the hurricane on collateral performance, we analyzed collateral concentrations in affected areas, servicing strategies regarding borrowers impacted by the hurricane, and standards regarding physical damage insurance on collateral.

Hurricane Sandy left widespread damage across the eastern coast of the U.S. However, the most significant impact was in the Tri-state area of New York, New Jersey, and Connecticut. The transactions we reviewed are geographically diversified and typically do not have high concentrations in this area. Moreover, none of the manufactured housing, marine, or recreational vehicle securitizations we rate have significant exposure to the Tri-state area. Some of the luxury auto loan ABS issuers typically have higher concentrations in both New York and New Jersey. However, these auto loan ABS transactions have seasoned significantly and are adequately enhanced at their current rating levels. The asset type with the most exposure is auto lease--with several transactions having 20%-30% exposure to the Tri-state area.

Most servicers are offering some sort of payment assistance to customers affected by the storm. Some servicers have proactively reached out to their customers in the affected areas, while others have posted information on their Web sites regarding storm-relief assistance. The payment assistance can come in various forms, such as temporary payment deferrals, loan/lease extensions, and waivers of late charges. In addition, some lenders have increased customer service through extended service hours, suppressed collection calls, and personalized assistance based on the unique needs of those impacted by such a severe storm. We believe that this temporary assistance could have a minimal short-term impact on collateral performance, but we expect our ratings to remain stable.

Most consumer ABS transactions backed by hard collateral--specifically auto loan, auto lease, manufactured housing, marine, and recreational vehicle transactions--require obligors to maintain physical damage insurance on the collateral. Typically, part of the servicer’s responsibility is to ensure that insurance coverage does not lapse and is maintained for the life of the loan/lease. To the extent the insurance has lapsed, some servicers might opt to use forced place insurance, in which the lender takes out an insurance policy and passes the costs on to the borrower. We believe most servicers have been monitoring borrower insurance policies and that any damage on non-insured collateral will be minimal. For the majority of the collateral, which is insured, we believe insurance claim payments will offset most losses. However, we also believe there could be some temporary spikes in defaults due to claim-processing delays, which will eventually increase the severity of loss.

We expect the impact of Hurricane Sandy on collateral performance to be minimal, and we expect no impact on our ratings in auto loan, auto lease, manufactured housing, marine, and recreational vehicle ABS. Some transactions will likely see a short-term impact on delinquency rates and possibly defaults. However, the relatively small geographic concentration of the affected areas, the issuer/servicer’s proactive approach to assist borrowers affected by the storm, and the presence of insurance on the outstanding collateral should help mitigate the impact. We will continue to watch performance closely.

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