One of the experts set to appear during the upcoming 23rd annual Non-Prime Auto Financing Conference hosted by the National Automotive Finance Association doesn’t have upbeat expectations of how the subprime auto finance space will perform.
Portfolio performance is expected to deteriorate soon, according to a 360-degree market study released last week by Credit Chronometer, a microsite authored by Joseph Cioffi, partner at Davis & Gilbert and a respected authority on credit markets.
Cioffi is part of the collection of nearly 60 executives, industry leaders and other distinguished speakers set to appear during the event, which begins on Wednesday in Plano, Texas.
From the NAF Association/AFSA Non-Prime Auto Financing Survey and a look at the auto ABS market to what’s being dubbed as “Fraud Friday,” this year’s event contains three days of informational presentations and networking opportunities.
“The program is very good. It covers many aspects of non-prime auto financing,” NAF Association executive director Jack Tracey said.
When given the opportunity to speak, Cioffi likely will be referencing his report titled, "Participants’ Expectations Point the Way to the Future of Subprime Auto." The project summarizes the results of an anonymous study of nearly 100 originators, investors, servicers, trustees and other securitization market participants, on topics such as credit quality, the sufficiency of credit enhancement protections and the ability to obtain and maintain desired credit ratings.
Cioffi explained in a news release that participants’ views in these areas diverge, at key points, from the generally upbeat sentiment publicly reported.
“This pessimism for the future exists despite a rosy past, given that a majority of respondents have not yet incurred a loss related to their participation in subprime auto securitizations,” said Cioffi, who is chair of Davis & Gilbert’s insolvency, creditors’ rights and financial products practice group.
Cioffi believes the securitization market’s historical success has been due in large part to the balance achieved by three interdependent factors: credit ratings, credit enhancements and credit quality. Cioffi refers to these as factors as “C3” and finds that participants’ responses indicate that “C3 equilibrium is being disrupted by recent performance,” which will impact credit enhancement levels and credit ratings.
The report described how market expectations will need to adjust to restore the balance.
Other key findings of the study include:
— A negative performance outlook is impacting participants’ views on the sufficiency of credit enhancements and the ability to achieve desired ratings.
— Investors express greater concern than other market participants regarding credit enhancement levels, especially for subordinated tranches.
— Credit quality concerns center on the vulnerability of subprime borrowers to changes in the economy.
The full report findings can be downloaded here.
Along with Cioffi, some of the experts slated to share their insights during the NAF Association’s conference include:
— Ben Werner, FICO
— Amy Martin, S&P Global Ratings
— Jonathan Smoke, Cox Automotive
— Chris Burt, GM Financial
— Michelle Whatley, Exeter Finance
— Eric Johnson, Hudson Cook
— Mark Edelman, McGlinchey Stafford
— Penny Campbell, Jefferson Capital Systems
— Kip Cochran, Texas Dealer Solutions
— Sharon Mancero, Wells Fargo Preferred Capital
— Kelly Blankenship and Richard Hudson, Ignite Consulting Partners
— Frank McKenna, PointPredictive
— Josh Wortman, General Forensics
Also, graduates of the NAF Association’s Certified Consumer Credit Compliance Professional Program can earn up to eight credits toward recertification during the conference.
Complete agenda and registration details are available at www.nafassociation.com.