The rapid growth of technology, particularly the adoption of AI, is already seen as a threat to many jobs, democratic institutions — and potentially, the future of humanity. Add asset-backed securities to the list of things that could be under threat.
In a new report, Fitch Ratings warns that technological advances, including the growing use of AI, raises the risk of certain assets becoming obsolete more quickly, and facing a significant decline in value — which would, in turn, impact the value of asset-based securities (ABS), residential and commercial mortgage-backed securities (RMBS and CMBS).
“Loans in these asset classes are typically secured by assets central to daily life — vehicles, workplaces or leisure destinations, and homes — whose underlying fundamentals have often evolved slowly,” the report noted.
Now, as technological change speeds up, those fundamentals could shift more quickly too, it suggested.
For example, in auto ABS, “older internal combustion engine cars with outdated software or 2G/3G connectivity issues may lose value more quickly than newer models,” it said.
At the same time, residential MBS could be affected by AI-enhanced data and analysis that could result in property values falling “in areas facing higher climate-related risks.”
For commercial MBS, “smarter AI-enabled logistics may reduce demand for legacy last-mile facilities,” it noted.
The risk of assets becoming rendered obsolete more quickly also rises when assets face “a combination of technological exposures,” Fitch said.
“For example, unsupported software/connectivity and, in some cases, manufacturer failure could lead to very low resale values for older electric vehicles with a limited range,” it said.
However, these added valuation stresses won’t automatically lead to rating downgrades for asset-backed securities, the report noted, given the diversification in these instruments.
“For example, battery EVs comprise no more than 10%-15% of most European auto ABS portfolios,” it said.