Fitch ABS Conference Recap: Consumer Credit Performance Panel

Fitch Ratings held their ABS Conference in New York City on September 29th, bringing together industry experts across structured finance, including dv01’s Chief Economist Vadim Verkhoglyad.

Vadim joined the “Consumer Credit Performance: Affordability, Resilience, and Outlook Across ABS Sectors” panel, bringing dv01’s research perspective to a broader discussion on consumer asset-backed securities and the health of U.S. households.

The discussion was moderated by Ian Rasmussen, Managing Director at Fitch Ratings, and also featured:

• Sahil Chandiramani, Head of Capital Markets at Pagaya Technologies
• Mike Gizard, Senior Director at Fitch Ratings 
• Kenneth Szal, Senior Director at SLC Management

Consumers are broadly resilient, but pockets of stress remain

In aggregate, U.S. consumers remain healthy, supported by relatively strong employment and household balance sheets. At the same time, that overall strength is masking segments of the population feeling more acute financial pressure. Higher insurance and housing costs have created challenges in parts of the Southeast, especially Florida. Other borrowers are showing signs of strain through rising credit utilization, more inquiries and greater use of multiple forms of credit. According to some estimates, this more vulnerable population segment could represent roughly 10% to 15% of consumers. So, while this is a trend worth following, it is not evidence of broad-based deterioration.

Tighter underwriting is helping newer vintages, but subprime auto is an area of weakness

After weaker 2022 and 2023 vintages, newer collateral is benefiting from tighter underwriting and stronger borrower selection. Among leading unsecured personal loan issuers, growth is coming from expanding application flow and adding lending partners rather than widening the credit box. Across auto, the weaker 2022 and 2023 vintages are gradually paying down, while subsequent underwriting has generally targeted stronger borrowers.

The performance gap between prime and subprime auto loans is one of the clearest examples of divergence in consumer credit markets. Prime deterioration has been relatively gradual, while subprime delinquencies remain elevated and have been heavily influenced by weaker 2022 and 2023 vintages. Recently, performance has shown periods of stabilization, but the trend remains uneven.

Household balance sheets remain on solid footing 

Another recurring theme was that US households have continued to be disciplined in managing their household balance sheets. Higher-income and older households have driven much of the recent growth in spending and non-mortgage credit, while lower- and middle-income households have been more focused on saving and reducing debt. This behavior likely reflects a longer-term shift in household psychology following the Global Financial Crisis, rather than a temporary response to the current economic cycle.

For investors, issuer and deal selection matter more than the sector overall

The discussion framed investment decisions around four factors: sponsor, structure, secondary liquidity and spread. Servicing quality was also emphasized as an important differentiator, particularly when the sponsor is responsible for servicing the underlying loans. As private credit expands alongside the public ABS market, diversified funding can strengthen issuers by reducing reliance on a single source of capital. But investors are also watching for potential effects on collateral selection and secondary liquidity.

Seeing the dispersion beneath the headline

Overall, this discussion underscores why loan-level analysis matters more than ever. dv01’s Market Surveillance gives market participants the ability to move beneath headline metrics and compare performance across the characteristics driving outcomes. That makes it easier to identify where deterioration is concentrated, distinguish portfolio-wide trends from isolated pockets of weakness, and evaluate how newer vintages are performing relative to previous vintages.

Contact our team to learn how dv01 can help you spot emerging consumer credit trends.