Car Loan Losses Up 50% Since June 1996, As Lenders Get Burnt by Risky

June losses of subprime auto lenders were 50% higher than a year earlier, according to Moody's Investment Services.

In a June survey of 106 securities linked to $18 billion in auto loans, Moody's said the greatest increases were in loan pools created by Consumer Portfolio Services Inc., First Merchants Acceptance Corp., and Union Acceptance Corp., where loan losses rose by 25% to 50%. KeyCorp's Auto Finance Group's transactions showed the greatest improvement, with losses falling about 10%, the debt rating agency said.

"Recently securitized pools have targeted riskier borrowers. These pools have been performing below expectations," said Moody's senior analyst Richard Cantor.

Analyst Jay Eisbruck said he expects auto loan credit quality to worsen through the end of the year, but at a slower rate of decline than last year.

"We're seeing a bit of a decline in performance of these loans," Mr. Eisbruck said, with most loans booked in 1995 and 1996, a period of increased competition when companies lowered underwriting standards.

Asset-backed securities investors are generally protected, Moody's said, because the notes are insured. Earnings of companies that sell their loans to investors are closely bound to the performance of their securitized loan pools, which are a major source of revenue.