medium · Asset-Backed Securities

Why do auto loan ABS speeds typically remain stable or even increase slightly during a period of rising interest rates, whereas mortgage ABS speeds plummet?

1. Auto loans are typically floating-rate, so borrowers pay faster when rates rise to save interest.
2. The ABS% prepayment convention mathematically forces the reported speed to rise as the pool amortizes down.
3. Auto prepayments are driven by vehicle trade-ins and 'total loss' events rather than refinancing incentives.
4. Dealers and originators routinely offer cash 'rebates' incentivizing borrowers to refinance old loans when rates rise.

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