Despite the recovering economy, the timeshare industry still faces a number of challenges like the issue of profitability and the number of owners who are trying to get out of their timeshare contracts every year. But according to the latest timeshare ABS index from Fitch Ratings, US timeshare ABS delinquencies and defaults are down for the second straight quarter, though the trend will not last if seasonal patterns take hold.
The decline in delinquencies in second-quarter 2010 reflects both seasonal and year-over-year improvement. Defaults, while lagging delinquencies have begun to show a similar trend in 2Q’10. According to Director Brad Sohl, the seasonal effect will fade in the latter half of the year, leading to modest increases in delinquencies. Nonetheless, year-over-year improvements will continue to hold.
Given the expected stable collateral performance and ample credit enhancement levels, Fitch’s Rating Outlook for Timeshare ABS still remains Stable. The timeshare delinquencies and defaults have returned to levels consistent with previous recessions. As Sohl said, despite the improvement, current and emerging timeshare performance still illustrates a stressed US consumer.
For 2Q’10, total delinquencies were 3.61%, down from 4.64% at the end of 1Q’10. Meanwhile, in 2Q’09, delinquencies decreased by almost 25% from 4.79%. This drop is somewhat exaggerated due to the addition of certain recently issued securitizations to the index. These transactions generally experience lower delinquency rates during their first several months. However, absent these transactions, the index still evidenced a drop in delinquencies of approximately 15%.
On the other hand, Fitch’s timeshare ABS index is an aggregation of performance statistics on pools of securitized timeshare loans originated by various developers. The expected cumulative gross defaults on underlying transactions can range from 10% to above 20%. While the delinquencies and defaults may vary on an absolute basis, most transactions supporting the index exhibit similar overall trends.