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Securitization in Focus — September 2025

Update from FICO

FICO released its inaugural Score Credit Insights report in mid-September, offering a detailed look at evolving consumer credit behaviors nationwide. FICO Scores remain the standard for 90% of top US lenders, though VantageScore is gradually gaining traction.

Key findings:

 

Average score decline

The national average FICO Score fell from 717 to 715 over the past year. Rising credit card utilization and increased missed payments — including resumed student loan delinquency reporting — were primary drivers.

 

Gen Z under pressure

Consumers aged 18–29 experienced the sharpest decline (-3 points year over year) and the most volatility in score movement. Notably, 34% of Gen Z hold student loans, versus 17% of the broader population.

 

Polarization grows

The middle range of scores (600–749) continues to shrink — falling from 38.1% of the population in 2021 to 33.8% in 2025 — with more consumers moving into both higher and lower brackets.

 

Shifting payment hierarchy

Consumer repayment priorities are increasingly shaped by the purpose of the loan. Secured products tied to quality-of-life assets, such as autos and mortgages, rank higher in the hierarchy. Autos often lead, reflecting both necessity and the relative ease of repossession.

Changing Repayment Priorities (by rank, 1 = highest priority)

Period 1 2 3 4 5
2005–2007 Auto Mortgage Personal Loan Student Loan Bank Card
2010–2012 Auto Personal Loan Mortgage Bank Card Student Loan
2015–2017 Auto Personal Loan Mortgage Bank Card Student Loan
2020–2022 Mortgage Student Loan Auto Personal Loan Bank Card
2023–2025 Auto Mortgage Personal Loan Bank Card Student Loan

Delinquency trends by product

Recent shifts in delinquency highlight meaningful differences across loan types:

Personal loans

A modest improvement, with 30+ day delinquencies easing from 6.6% to 6.1% over the past year, reflecting tighter underwriting standards.

Auto loans

Delinquency rates are up 24% since 2021, rising from 5.9% to 7.3% (30+ days delinquent).

Credit cards

The sharpest increase, up 48% since 2021, with rates climbing from 7.9% to 11.7% (30+ days delinquent).

Mortgages

Delinquencies rose 64% since 2022, from 2.8% to 4.7% — though levels remain below pre-financial crisis peaks.

Some color on Tricolor

What is Tricolor?

Founded in 2007, Tricolor is a “buy here–pay here” auto finance company focused on serving the underserved Hispanic market — consumers who often lack access to traditional financing through banks, credit unions or captive auto lenders. As of 30 April 2025, Tricolor operated 65 dealerships, primarily in Texas and California, under the names Tricolor, GanasYa! and Ganas Auto Group. The company is a wholly owned indirect subsidiary of Tricolor Holdings, LLC.

What happened?

On September 10, Tricolor filed for Chapter 7 bankruptcy after several banks disclosed potential losses tied to its warehouse credit lines. The US Justice Department has launched an investigation into alleged irregularities. Tricolor Auto Acceptance LLC — the servicer on Tricolor Asset-Backed Securities (ABS) — also filed for Chapter 7, triggering a servicer termination event that shifted responsibilities to backup servicer Vervent. On September 22, Wilmington Trust resigned as trustee for Tricolor’s seven securitizations, pending the appointment of a successor.

What’s next?

Much remains unclear. As the investigation unfolds, the market awaits details on the extent of the issues, the validity of fraud allegations and potential next steps.

Market reaction:

  • Immediate response was limited, with only modest spread widening in subprime Auto ABS from smaller issuers.
  • The broader ABS market remained resilient: issuance the week of September 12 hit a record $19.2 billion, far above the three-year weekly average of $5.6 billion.
  • Demand across new issues remains strong, spanning the capital stack and asset classes including autos, private student loans and credit cards.

Asset-backed securities

ABS Issuance ($B)

ABS Issuance

Year-to-date (YTD) Asset-Backed Securities (ABS) issuance is tracking just behind 2024’s pace but remains historically strong at $258.3 billion. September rebounded strongly from the slowdown in August, with issuance during the week of September 12 posting record volume of $19.2 billion (3-year weekly average $5.6 billion).

ABS Issuance: 2025 vs 2024 ($B)

ABS Issuance: 2025 vs 2024 ($B)

Commercial mortgage-backed securities

CMBS Issuance ($B)

CMBS Issuance

Issuance in 2025 remains well ahead of the pace set in both 2024 and 2023. CRE CLOs1 have already exceeded full-year totals for the past two years, while SASB2 deals are nearing 2024’s full-year production.

1Commercial Real Estate Collateralized Loan Obligations
2Single-Asset Single-Borrower

CMBS trends in September

For the first time since February, the overall CMBS delinquency rate declined, falling to 7.23% in September from 7.29% in August. Every sector but retail saw improvement:

  • Lodging: Dropped 73 basis points (bps) to 5.81%, the lowest since March 2024.
  • Office: Fell 53 bps to 11.13%. Despite the drop, this still marks the second-highest delinquency on record (11.66% in August was the peak).
  • Multifamily: Declined to 6.59% from 6.86%, but nearly double last year’s level (3.33% in September 2024).
  • Industrial: Edged down 4 bps to 0.56%, the lowest of all sectors.
  • Retail: Rose 34 bps to 6.76%, reversing recent improvement.

Residential mortgage-backed securities

Issuance

Non-QM issuance continues to dominate in 2025, with year-to-date production at $52.5 billion — already surpassing 2024’s full-year total of $41.8 billion.

Strength in the “other” segment — including Home Equity Loans/Lines and Reverse Mortgages — has also pushed issuance above 2024’s full-year levels. Together, Non-QM and Other account for nearly 62% of all non-Agency RMBS issuance.

2025 Monthly Non-Agency RMBS Issuance ($B)

RMBS Issuance

Key
CAS/STACR: Credit Risk Transfer/Structured Agency Credit Risk
Non-QM: Non-qualified mortgages
NPL: Non-Performing Loans
RPL: Re-Performing Loans
SFR: Single-family rentals

Sources: Deutsche Bank, Trepp, FICO.

The views expressed are those of Diamond Hill as of October 2025 and are subject to change without notice. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.

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