Pentagon Federal Credit Union headquarters. Credit/Adobe Stock

Pentagon Federal Credit Union announced this week it sold $398.5 million in prime auto loans in its third securitization deal.

PenFed sold the securities in seven tranches maturing from September 2026 to October 2033. They were given investment-grade ratings by Standard & Poor’s and Fitch on Sept. 17.

The deal will generate up-front cash and a stream of income from its 1% annual servicing fee. It will lower PenFed’s loan-to-share ratio slightly.

NCUA data pulled from Callahan’s Peer Suite showed PenFed had a loan-to-share ratio of 91.4% on June 30. Had the loans been sold on that date, PenFed’s loan-to-share ratio would have fallen to 89.9%.

PenFed auto loans have been falling, because a dwindling pool of indirect loans. Total car loans stood at $3.7 billion on June 30, down 22% from a year earlier. In dollars, the 12-month drop is slightly more than $1 billion — a number affected by the sale of $447.4 million in car loans for its August 2024 securitization.

This month’s deal brought PenFed’s total securitizations to $1.3 billion, including $460 million sold in its first deal in 2022. PenFed’s total was second only to the $1.8 billion sold in three deals by Space Coast Credit Union of Melbourne, Fla. ($9.16 billion in assets, 684,320 members), including $700 million Aug. 6.

The Sept. 17 report from Fitch Ratings said the pool of loans in PenFed’s deal had strong credit quality, but not quite as strong as its 2024 issue.

September’s pool had a weighted average FICO score of 758, with FICO scores 800 and above totaling 23% of the pool, compared with 25% in 2024 and 33% in 2022.

FICO scores below 700 were 14% of the September issue, the same as 2024, but up from 11% in 2022.

Also, original loan terms greater than 60 months total 77% of the pool, down from 79% in 2024 but up from 53% in 2022.

Used vehicles constitute 82% of the pool, up from 75% in 2024 and 56% in 2022.

Fitch said those characteristics are “generally weaker” than PenFed’s earlier issues, “but consistent with those of other prime auto ABS transactions.”

The largest group of borrowers in the PenFed pool was the 19% in Puerto Rico, up from 15% in 2024.

Standard & Poor's Sept. 4 presale report showed PenFed’s 60-day-plus delinquency rate was 0.21% for its $2.9 billion in direct auto loans as of June 28.

“PenFed’s direct auto loan portfolio showed a relatively steady level of delinquencies from 2019 through 2021 and subsequently peaking in 2022 and 2023.

“Delinquencies have declined since 2023 and are now in line with pre-pandemic levels. Similarly, net charge-off rates peaked in 2023 as the elevated delinquencies flowed through the portfolio,” the S&P report said.

S&P said PenFed began tightening underwriting in 2022 by:

  • Stopping lending to people in several higher-risk tiers in June 2022.
  • Cutting the maximum loan-to-value ratio to 110% for higher risk tiers on new and used vehicles in Puerto Rico in June 2023.
  • Raising the minimum FICO score for all borrowers to 650 in November 2023, and shortening its charge-off policy to 120 day from its previous 180-day limit.

Credit unions began selling auto securities in 2019, and PenFed's deal brought total sales to nearly $7.9 billion, including $2.1 billion so far this year.

Contact Jim DuPlessis at JDuPlessis@cutimes.com.

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