A new index finds that credit-quality weakness permeates the subprime auto lending sector and is not confined to the recent handful of high profile blow-ups.

"There has been a marked decay of credit performance" in pools of securitized loans over the past three years, according to the index, which Moody's Investors Service plans to unveil today.

Moody's analysts found that average credit quality, based on cumulative losses, is now 150% worse than in January 1995, which is as far back as the index tracks.

Most of the deterioration stems from the market's shift toward lower quality loans in newer transactions-not from declining performance of existing loans-according to the Moody's report.

Lenders have been reaching out "to progressively riskier obligors," said Moody's senior analyst Jay Eisbruck.

Most problems are in loans issued by independent finance companies, as opposed to originations by banks and finance companies owned by automakers, the Moody's report stated.

Lenders and Wall Street are expected to welcome the new tracking system, which comes after this spring's spate of downgradings of securities backed by auto loans.

There is a need for more finite measures of the industry's health, through more detailed assessments of lenders and the type of borrowers they target, said Lisa G. Anderson, director of asset-backed research and strategy at Deutsche Morgan Grenfell.

"A lot of issuers are more in the middle, between prime and subprime, but they are erroneously being characterized as subprime," she said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.