On April 10, 2008, Consumer Portfolio Services, Inc. (CPS) announced the securitization of $310.4 million in subprime auto loans, of which $244.4 million were AAA rated. This will enable CPS to continue to buy subprime automotive paper. Additionally, this is the first securitization of subprime auto paper since November of last year.

Curt Powell, senior vice president of marketing at CPS, said, “Our business model is such that we securitize all of our auto loans, so the fact that we did a securitization after an interruption – we haven’t securitized since September of last year – allows us to continue with our existing business model.”

Powell said this securitization allows CPS “to continue the origination process more or less in line with how we’ve done it in the past,” adding, “we’re modifying credits slightly … but we’re still buying sub-550.” He also said he hopes to see other companies like CPS follow suit and pursue securitization in order “to keep the subprime auto business healthy.”

Dan Hankey, president of Westlake Financial, said, “I think there are several finance companies who are all waiting in line to securitize some of their paper. Whoever went first had to pay dearly for the privilege and hopefully the price will come down and more lenders will be able to securitize.”

This recent securitization is important to the industry, according to Aaron Dalton, senior vice president at Prestige Financial Services, Inc.: “It’s important because it's the first subprime auto transaction to take place since November. Other auto ABS securitizations have gone out recently, but they’ve all been prime, so the CPS transaction demonstrates that there’s liquidity available in the market to other subprime auto issuers, although the terms appear to be substantially different from what they would have been a year ago.”

Powell has a positive outlook for CPS and the subprime auto industry, saying, “We’ve been committed to the subprime end of the business since 1991. We think it’s a very viable side of the business, and … we’re going to stay in this market and make it work.”

However, “we’re not out of the woods yet,” added Powell. “The whole global capital market has been disrupted. It’s not just auto finance; it’s not just mortgages … Nothing has normalized yet in terms of process and flow. We feel very confident and comfortable that getting it done was a huge step in terms of executing our business plan.”