Fitch: 2Q Delinquencies Down for U. S. Timeshare ABS
Total delinquencies for second quarter-2016 (2Q'16) declined to 3.28% from 3.58% in 1Q'16 but up notably from the 2.66% observed in 2Q'15. The fall follows three quarters of consecutive increases driven by overall sector-specific normalization. Seasonal trends have always taken hold since the inception of Fitch's index, with delinquencies decreasing every second quarter.
Timeshare default trends, however, typically lag those of delinquencies. Defaults increased last quarter to the highest level since 2Q'09. Defaults for 2Q'16 were 0.85%, up from 1Q'16 at 0.79% and 0.57% observed a year ago in 2Q'15. In fact, timeshare defaults have increased each of the last five quarters and remain elevated compared to pre-recessionary levels. On an annualized basis (rolling 12 months), defaults were 7.85% for 2Q'16, up from 7.29% for 1Q'16. This is the fourth quarterly increase after three years of consecutive quarterly declines.
Fitch expects some additional nominal increases in delinquencies and defaults in the near term as performance normalizes after recent year-over-year improvement. Fitch's 2016 Rating Outlook for timeshare ABS remains Stable due in part to the delevering structures found in timeshare transactions, resulting in ample credit enhancement levels.
Fitch's timeshare ABS index is an aggregation of performance statistics on pools of securitized timeshare loans originated by various developers. Expected cumulative gross defaults on underlying transactions can range from 9% to above 20%. While delinquencies and defaults may vary on an absolute basis, most transactions supporting the index exhibit similar overall trends.
The Fitch timeshare performance index summarizes average monthly delinquency (over 30 days) and gross default trends tracked in Fitch's database of timeshare asset backed securities (ABS) dating back to January 1997 and is available on a quarterly basis.