Document Text Contents
Page 23
September 15, 2005 Guide to Auto ABSs
Citigroup Global Markets 23
Seasoning, Weighted Average Maturity, and Mix of Contracts
Seasoned loans perform better than unseasoned loans. Seasoning refers to how long
ago the servicer granted the loans. The prospectus also discloses the remaining term
to maturity. The contract maturities are usually well distributed to provide a
consistent cash flow stream.
Underwriters have been granting longer maturity contracts — up to 72 months and
sometimes even 84 months in recent years. The longer maturity makes the payment
more affordable. On the other hand, the collateral loses value as it ages, and the
collateral is further underwater later in the contract age. However, no evidence to
date indicates that longer maturities are resulting in greater losses. Loss curves
appear to be more back-ended (see Figure 6).
Geographic Diversity
A geographically well-balanced pool is desirable. Large regional or state
concentrations might invite further inquiry into the laws or loss patterns peculiar to
that region. The rating agencies will generally require extra credit enhancement to
compensate for any unusual geographic concentrations.
Other Information
The following information is generally not provided in prospectuses, but investors
may have opportunities to ask for this information at issuer meetings or on-site visits:
➤ Average FICO score, range, and mix of scores. This provides a general idea of
the obligor quality of the pool to compare against other issuers. The minimum
FICO score acceptable to the servicer provides insight into the range of obligor
quality.
➤ Average advance on vehicle value. This is more important for sub-prime
lenders. Higher losses are generally experienced on high advance rates. Most
lenders will generally advance no more than 105% to 110% of NADA wholesale
value, plus tax, tags and insurance.
➤ First payment defaults (for subprime issuers). First payment defaults should
be negligible. This should be a low number, even for subprime lenders. First
payment defaults should be in a range of 1% or less.
➤ Extension policies. Extensions can lengthen the average life of the pool so many
transactions cap the permitted length and amount of extensions in a pool. An
extension is where the servicer permits the borrower to take one or more
payment holidays. In order to avoid disguising credit problems, some servicers
require that the contract be current before granting an extension.
➤ Underwriting decision model — automated or subjective. Many lenders have
risk-based proprietary decision-making systems. Understand the lenders strategy
and history. Insight into policy exceptions is also valuable.
Seasoned loans
perform better.
Geographical diversity
is desirable.
September 15, 2005 Guide to Auto ABSs
Citigroup Global Markets 23
Seasoning, Weighted Average Maturity, and Mix of Contracts
Seasoned loans perform better than unseasoned loans. Seasoning refers to how long
ago the servicer granted the loans. The prospectus also discloses the remaining term
to maturity. The contract maturities are usually well distributed to provide a
consistent cash flow stream.
Underwriters have been granting longer maturity contracts — up to 72 months and
sometimes even 84 months in recent years. The longer maturity makes the payment
more affordable. On the other hand, the collateral loses value as it ages, and the
collateral is further underwater later in the contract age. However, no evidence to
date indicates that longer maturities are resulting in greater losses. Loss curves
appear to be more back-ended (see Figure 6).
Geographic Diversity
A geographically well-balanced pool is desirable. Large regional or state
concentrations might invite further inquiry into the laws or loss patterns peculiar to
that region. The rating agencies will generally require extra credit enhancement to
compensate for any unusual geographic concentrations.
Other Information
The following information is generally not provided in prospectuses, but investors
may have opportunities to ask for this information at issuer meetings or on-site visits:
➤ Average FICO score, range, and mix of scores. This provides a general idea of
the obligor quality of the pool to compare against other issuers. The minimum
FICO score acceptable to the servicer provides insight into the range of obligor
quality.
➤ Average advance on vehicle value. This is more important for sub-prime
lenders. Higher losses are generally experienced on high advance rates. Most
lenders will generally advance no more than 105% to 110% of NADA wholesale
value, plus tax, tags and insurance.
➤ First payment defaults (for subprime issuers). First payment defaults should
be negligible. This should be a low number, even for subprime lenders. First
payment defaults should be in a range of 1% or less.
➤ Extension policies. Extensions can lengthen the average life of the pool so many
transactions cap the permitted length and amount of extensions in a pool. An
extension is where the servicer permits the borrower to take one or more
payment holidays. In order to avoid disguising credit problems, some servicers
require that the contract be current before granting an extension.
➤ Underwriting decision model — automated or subjective. Many lenders have
risk-based proprietary decision-making systems. Understand the lenders strategy
and history. Insight into policy exceptions is also valuable.
Seasoned loans
perform better.
Geographical diversity
is desirable.
