How ABS Credit Enhancements Are Masking Subprime Risk [PODCAST]

Joseph Cioffi, Partner at Davis & Gilbert

Multiple subprime auto securitizers are coming to the market with lower average Fico scores, longer terms, and higher loan-to-value ratios than their previous issuances. Yet, these deals are being rewarded with higher ratings.

Joseph Cioffi, a partner at Davis & Gilbert LLP, has identified a fair amount of risk in this pattern and joined the Center for Auto Finance Excellence’s podcast, The Roadmap, for a discussion of auto ABS trends.

The short answer to identifying this trend is that lenders are adding a lot of protections to the securitization such as over-collateralization. But, at some point down the line that could reach a tipping point, he said.

“I didn’t expect to see the credit enhancements increasing accompanied by the lower credit quality,” Cioffi said. “At some point, credit enhancements may not be able to absorb a shock to the economy or a shift in the market, and I don’t think these credit enhancements should be seen as a deodorizer for terrible quality loans. If you have more bad loans in a deal, it’s not going to help if you have a shock to the system.”

Cioffi also delves into trends such as the rising subprime delinquencies and losses experienced across the industry, the pullback from prime issuers and how this moment compares to the 2008 financial crisis.

Tune in to The Roadmap to hear the full podcast below. Feel free to email us with questions and suggestions at

For more content like this, attend the third annual Auto Finance Innovation event, slated for March 7-8, at the Parc 55 in San Francisco. For information, or to register, visit

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