S&P Wants You To Know They "Stress Tested" Subprime Auto ABS Structures And They're "Very Stable"

Tyler Durden's picture

The same firm that 'assured' us all back in 2006 that RMBS, CDOs, synthetic CDOs and CDO-squared structures were all very safe products and well deserving of their AAA ratings would now like for you to know that they've "stress tested" subprime auto ABS facilities and found that they're "very stable." 

According to the Auto Finance News, the assurances were given by S&P's senior director, Amy Martin, at the recent ABS East conference in Miami.  Apparently Martin is undeterred by the fact that subprime ABS “losses are going up from 2015 and 2016 [vintages], even approaching recessionary levels” during a period in which employment levels continue to improve.

While rising losses have caused some concern in the industry, S&P Global Ratings found that subprime auto loans bundled in securitizations are still well positioned to weather an economic downturn.


“Losses are going up from 2015 and 2016 [vintages], even approaching recessionary levels,” Amy Martin, S&P’s senior director, told Auto Finance News during a meeting at ABS East, noting that unemployment is the lowest it’s been since 2001. “But you have to look at it relative to what’s happening with the ratings, and the ratings are very stable.”


The company ran a stress test to see how these securitizations would react under a Better Business Bureau stress scenario, which simulates another 2008 economic crisis event: lower used-vehicle values, 10% unemployment, and rising debt levels. The test found that subprime losses would rise 1.67 times higher than S&P’s baseline economic projections. That would be a large jump because it’s a large macro economic shift, but ultimately AAA and AA rated subprime auto deals would not fall by more than one category over their life under that scenario. That’s “well within” S&P’s criteria, which stipulates that AAA and AA ratings can’t move by more than one category in one year, and can’t move below investment grade in three years.


Furthermore, all of the subprime deals that S&P rates fared better than expected when compared to stress tests performed when the securitizations were first issued.

Well, if S&P has confirmed it then it must be true.


Of course, even though S&P is absolutely positive that their AAA ratings on subprime auto ABS structures are solid, they do admit it can be difficult to account for things like "lower recovery rates, regulatory scrutiny from state attorneys general, and higher interest rates."

However, there are some weaknesses to watch, such as lower recovery rates, regulatory scrutiny from state attorneys general, and higher interest rates.  “Some companies won’t be able to offset rising borrowing costs because the annual percentage rates on their loans may already be at or close to the maximum state usury limits,” Martin said in a September report. “Also, the newer subprime auto finance companies started during a benign economic environment with low-interest rates and rising employment, so their ability to survive a rising interest rate environment has not been tested.”

Do they mean "lower recovery rates" like the 50% drop in used car prices that Morgan Stanley recently said was possible in their downside scenario?

Used Car Prices

No, we're sure that, just like all the confirmations we got from the mortgage 'experts' in 2006 that home prices in America could simply never fall, Ms. Martin would be happy to assure us all that used car prices could simply never fall that much...until they do, of course.

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greenskeeper carl's picture

I want to hear Kramer's take on it before I invest, just to be sure...

small axe's picture

I'm waiting for Bullard to speak up, he must some deep insights known only to the special people with a direct pipeline to god. 

JRobby's picture

So were all the MBS'

AAA+ !!!

jcaz's picture

Yeah, like they would have said there was a problem when it was slapping them in the face........

Speaking of fraud, what the FUCK is "AAA-rated subprime"?????

Bastiat's picture

S&P needs to be "stress tested."

DeadFred's picture

They are backed by the best water-logged cars that money can buy. What could go wrong?

JackT's picture

Now they're just in it for the lulz

oncefired's picture

Cool! How much is this debacle going to cost taxpayers? To Big To Fail Car Companies?

Mr Hankey's picture

Yabbut,yabbut,what about jiggyballgate?

GunnerySgtHartman's picture

Gartman will be bullish on this.

Then, two days later, bearish.

Then bullish again 6 hours after that!

VWAndy's picture

 Late stage fiat addiction.

FreeShitter's picture

I'll sleep soundly knowing its very stable...

vega74's picture

Hah!  you beat me to the 'I can sleep' comment.  Still waiting for verification from Gartner
and Cramer on this.  Pro tip to newbies: /sarc  which means sarcasm.

Peacefulwarrior's picture

As stable as using a condom for a second time

1.21 jigawatts's picture

I can't wait to pick up a 2-year-old Cadillac for .2 BTC!!

Northern Lights's picture

It's stable until it's not.

coast1's picture

lol....they said everything was fine and great and merry and lets all go out and buy cocaine and hookers back in 2007

serotonindumptruck's picture

Meanwhile, the repo business has never been more lucrative.

Winston Churchill's picture

You have to wonder just how many car Notes were sold multiple times into

differents ABS trusts.Bear Stearns held the record with RMBS, one mortgage held in

42 "trusts".Now thats rehypothecation, or as us mortals say FRAUD.

buzzsaw99's picture

AAA and AA rated subprime...

omg lolololololol here we go again.

Mr Hankey's picture

Yabbut, yabbut, jiggyballgate!!!!!!!

BandGap's picture

Judging by the number and the extent of the fucking lying (and it is expansive although lacking in imagination), we are getting close to implosion. This isn't even funny anymore, guess it never really was. One thing is for sure, the angst doth gain momentum.

At what fucking point do everyday, ordinary (tax paying) people realize that all this shit is fucking being done to distract?

Middle class will go out with a wimper. Pick it up, boys.


wisehiney's picture

Sub sub prime loans for sub sub flooded hurricane cars.

shankster's picture

I can sleep now.

JohnG's picture

The fleets of repo-men I see puts the lie to this.

Stormtrooper's picture

How can I invest in repo companies?  Any public ones?

Jtrillian's picture

It is difficult for people to see the truth when their job depends on them not seeing it. 

ironmace's picture

Now I know we are fucked.

indaknow's picture

Stress tested. There's that phrase again. Who wouldn't want to invest in a product that has the words stress associated with it? Like that's a good thing.  Load up boys it's been tested. It's better  than guaranteed. Its passed the stress fucking test! By no less than the s&fuckinP.

Remember all those banks that were stress tested. They wouldn't lie to you. .. would they? 

flyonmywall's picture

Now I know these fuckers are lying.

Questions: How does one short auto loans as a small investor?

Just short credit in general or is there a more specific ETF to do it with?


skidrow's picture

Short WFC 


charlewar's picture

tulip bulbs, anyone?

CHoward's picture

Such fucking bullshit.  EVERYTHING IS FUCKING BULLSHIT!!

scoobiedoo's picture

Says another diversity hire with a music degree

Bunga Bunga's picture

Goldman Sachs has some very nice ABS on sale. AAA - what can go wrong?

Stan Smith's picture

     It's funny, or sad, or outrageous, or all of that how the credit ratings agencies got off ostensibly scott free after the last implosion.    For all the bashing of the banksters, it was their adoring wives -- the credit agencies -- that helped make it all go the way it went down.   I know folks in the know understand this,  but it's staggering to me how the general public ignores this.

    Life grades on a curve.    I think I should get a part time gig as a repo man.   This ought to be good.

JibjeResearch's picture

It's very safe.  That lot of cars is not real, it's just a picture... of cars

JailBanksters's picture

This is a bit like asking Ben Affleck, is Ben Affleck a good actor ?