ATLANTA and WASHINGTON, D.C. — During the same span in which
Equifax indicated new credit for auto loans hit the highest level in more than
eight years, the American Bankers Association's Consumer Credit Delinquency
Bulletin showed buyers are doing a better job of keeping up with their
payments.

The bulletin noted that delinquencies for both direct and
indirect auto loans improved year-over-year during the first quarter.

ABA reported this week that Q1 direct auto loan delinquencies — ones associated with contracts arranged directly through a bank — fell from
0.96 percent to 0.91 percent. The association also found that Q1 indirect auto
loan delinquencies — ones associated with loans arranged through a third party
such as a dealer — dropped from 1.85 percent to 1.66 percent.

ABA senior economist Keith Leggett pointed out the 15-year
average delinquency rates for direct and indirect auto loans are 1.92 percent
and 2.41 percent, respectively.

"In comparison, the delinquency rate in the first quarter
for direct auto loans was less than half of the 15-year average at 0.91 percent,"
Leggett said. "The delinquency rate for indirect auto loans is 75 basis points
below the 15-year average at 1'66 percent."

When SubPrime Auto Finance News asked Leggett about how much
stronger or weaker are direct and indirect auto loan delinquency rates compared
to the other credit segments ABA tracks, the senior economist indicated only
property improvement loans have a lower delinquency rate than direct auto
loans. 

Leggett then shared his assessment of how direct and
indirect auto loan delinquency rates might settle during the second half of
2013.

"Delinquency rates in the second half of this year will
depend on the pace of job creation and on the quality of consumer balance
sheets," Leggett said. "The recent rise in the housing prices has provided an
important boost to household wealth."

The upbeat developments shared by ABA reinforced what was
included in the latest National Consumer Credit Trends Report from Equifax.

Equifax determined $69.6 billion in new credit for auto
loans was originated in January and February, the highest level in more than
eight years and more than 70 percent higher than the recession low of $40.2
billion for the same time period in 2009.

Analysts said the 3.5 million new auto loans originated in
January and February also represent an eight-year high, while new loans funded
in that same time by banks, savings and loans or credit unions increased by
more than 20 percent to $35.6 billion from $29.5 billion.

"Sales of new cars and light trucks hit a five-year high in
the first quarter on a seasonally adjusted basis, and consumers' demand for
auto loans is similarly strong," said Equifax chief economist Amy Crews Cutts.

"Light trucks in particular are in demand for the newly
energized housing construction trade and there is a lack of supply of used
trucks available so prices on these vehicles are currently rising," Crews Cutts
continued.

"Consumers are also funding purchases of used cars with
loans at attractive rates and low delinquency rates are allowing lenders to make
credit a bit more easily available," she went on to say.

Other highlights from the most recent data shared by Equifax
included:

—Balances on outstanding auto loans totaled $798 billion as
of April, an increase of more than 8% from same time a year ago and a 51-month
high.

—The total number of loans stands at 59.8 million, nearly a
four-year high.

—As of April, total outstanding balances on loans funded by
auto finance companies are $416.9 billion, a 50-month high. The total number of
outstanding loans is more than 31 million, a 46-month high.

—Similarly, total outstanding balances on loans funded by
banks, savings and loans or credit unions are $381.1 billion, a high of more
than 60 months. The total number of loans outstanding is more than 28 million,
a 41-month high.

—Serious delinquencies on auto loans funded by banks and
other depositories fell to 0.32 percent of outstanding balances in April, a
decline of 13.9 percent from March's level and 9.1 percent lower than the same
time a year ago.

—Serious delinquencies on auto loans funded by finance
companies fell to 1.75 percent of outstanding balances, a decline of 11.7
percent from March's rate and 15.4 percent from April 2012's level.

More Delinquency Analysis from ABA

ABA discovered consumer delinquencies declined significantly
in this year's first quarter, falling in 11 out of 13 loan categories as
consumers more carefully manage their finances.

According to the association's bulletin, the composite
ratio, which tracks delinquencies in eight closed-end installment loan
categories, fell 29 basis points to 1.70 percent of all accounts in the first
quarter, the lowest level since December 2004 and well below the 15-year
average of 2.37 percent.

The ABA report defines a delinquency as a late payment that
is 30 days or more overdue.

Bank card delinquencies fell 6 basis points to 2.41 percent
of all accounts in the first quarter – the lowest level since June 1990 and
well below the 15-year average of 3.87 percent.

ABA chief economist James Chessen attributed the falling
delinquencies to a steady improvement in the economy and improving financial
health for consumers.

"Sharply lower delinquency levels reflect improving consumer
balance sheets, steady job creation and a continuing increase in household
wealth," Chessen said. "Many consumers have learned the hard lessons of
recession, and have redoubled their efforts to keep debt at manageable levels."

Chessen contends that rising wealth and improving consumer
confidence have played an important role in lower delinquency rates.

"Household net worth rebounded in the first quarter, rising
above its pre-recession peak for the first time in over five years," Chessen
said. "Rising home and stock prices create a wealth effect that boosts consumer
confidence, which contributes to healthier finances and a greater ability to
pay down debt."

Chessen noted that delinquencies in two home-related loan
categories — property improvement loans and home equity loans — fell in the
first quarter, a positive sign as the housing market continues its gradual
recovery. 

"Positive trends in home-related delinquencies reflect a
stronger economy and rebounding home prices," Chessen said.  "While this improvement is encouraging, it
will take a long time for delinquencies to work their way through the system
and return to more normal levels." 

While delinquencies for home equity loans, which are
closed-end loans with fixed terms and repayment schedules, fell sharply,
delinquencies for home equity lines of credit moved slightly higher in the
first quarter.

"An increasing number of home equity lines of credit have
gone from interest only to fully amortizing," Chessen said. "This results in a
payment shock for some borrowers who must adjust to paying down the principal,
along with the interest."

While Chessen found the broad-based decline in delinquencies
encouraging, he emphasized that sustained job growth and strong consumer
balance sheets are necessary for current trends to continue. 

"The future pace of delinquencies depends on a steadily
improving labor market and strong financial health for consumers," Chessen
said.  "This will allow consumers to more
easily meet their debt obligations."

The first quarter 2013 composite ratio is made up of at
total eight closed-end loans, which includes direct and indirect auto
contracts. All figures are seasonally adjusted based upon the number of
accounts.

Trends for the other six closed-end loans included:

—Personal loan delinquencies fell from 2.08 percent to 1.82
percent.

—Mobile home delinquencies rose from 3.53 percent to 3.92
percent.

—RV loan delinquencies fell from 1.27 percent to 1.20
percent.

—Marine loan delinquencies fell from 1.57 percent to 1.50
percent.

—Property improvement loan delinquencies fell from 0.83
percent to 0.74 percent.

—Home equity loan delinquencies fell from 4.03 percent to
3.72 percent.

In addition, ABA tracks three open-end loan categories:

—Bank card delinquencies fell from 2.47 percent to 2.41
percent

—Home equity lines of credit delinquencies rose from 1.85
percent to 1.91 percent.

—Non-card revolving loan delinquencies fell from 1.31
percent to 1.19 percent.

Nick Zulovich can be reached at nzulovich@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.


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