American Heritage Federal Credit Union Sells 2nd Auto Securities

“Historically, changes in the unemployment rate have been a key determinant of charge-offs in the auto finance industry. More recently, inflationary effects have also contributed to higher defaults, especially among lower income consumers,” the report said.

American Heritage of Philadelphia ($5.2 billion in assets, 324,968 members) held just over $1 billion in auto loans as of June 30, or 45% of its total loans. Its loan-to-share ratio stood at 96% on June 30. If the $250 million in auto loans had been securitized on June 30, its loan-to-share ratio would have fallen to 90%.

S&P forecast core consumer price inflation to rise to 3.0% to 3.5% by year’s end — down from its previous forecast of 4.0%.

It forecast gross domestic product (GDP) to rise 1.7% this year, which it revised up from its previous forecast of 1.5% “as a result of lower average effective tariffs and resilient economic data so far this year.”

However, that growth is still well below the 2.8% gain in GDP in 2024, a drop it attributed to “lower immigration levels, the cut to the federal government workforce, and the more uncertain operating environment for businesses.”

“Slower economic growth will likely cause the unemployment rate to drift higher this year, and we forecast it peaking at 4.6% by the first half of 2026,” it said.

S&P assumes the Fed will cut interest rates by 50 basis points in the fourth quarter.

Besides tariffs and inflation, S&P cited other dangers that have emerged:

• Growing consumer debt levels. “A higher percentage of consumers are carrying credit card balances and maxing out their credit card limits. In addition, the amount of buy-now, pay-later arrangements, which are largely unreported to the credit bureaus, is growing.”
• Vehicle affordability. “Consumers continue to face vehicle affordability issues due to higher monthly auto loan payments, stemming from higher vehicle prices and interest rates. Many consumers are also paying much higher auto insurance premiums.”
• The resumption of federal student loan debt payments. The U.S. Department of Education has said nearly 10 million borrowers are either in default or will default in a few months.

“The new administration’s strict collection approach, plus the reporting of nonpayment to credit bureaus, which began late last year, could change consumers’ payment hierarchy,” S&P said. “Borrowers may start prioritizing their student loan payments above their housing and car payments, which could cause them to fall behind on their auto loan payments.”

American Heritage’s August securitization followed a $300 million deal that closed last November.

Generally, August’s issue has borrowers with slightly lower credit scores, but more dispersed geographically. Nearly 53% of the borrowers are residents of Pennsylvania or New Jersey. Moody’s noted in its Aug. 14 pre-sale report that while down from 84% in the 2024 deal, having more than half of borrowers in two states is still high.

“This concentration in a limited geographic area, while common within credit union sponsored auto loan transactions, is significantly higher than the concentrations seen in typical auto loan transactions and exposes the transaction to worsening performance stemming from regional economic trends or idiosyncratic risk,” Moody’s said.

Moody’s compared key attributes of both. August’s issue had:

• A 753 weighted average credit score, with 69% having credit scores of 720 or better (compared with 763 average, and 74% at 720+ in 2024);
• A 98% loan-to-value ratio, up from 96.4% in 2024;
• An 8% annual percentage rate, the same as in the 2024 issue;
• A 75-month average original term with 62% of loans with terms of 73 to 84 months (up from 66% in 2024);
• A 63-month average remaining term, down from 66 months in 2024;
• 92% used cars, up from 85% in 2024;
• $23,888 average remaining loan size, down from $25,552 in 2024;
• 34% Pennsylvania, down from 50% in 2024; and
• 19% New Jersey, down from 34% in 2024.

American Heritage will earn a 1% annual fee for servicing the loans.

Contact Jim DuPlessis at JDuPlessis@cutimes.com.