March 26 (Bloomberg) -- Bonds backed by automobile loans may be hurt by rising subprime mortgage defaults as people with poor credit struggle with their household debt, according to Standard & Poor's.

Capital One Financial Corp., Wachovia Corp., Wells Fargo & Co., and other lenders have lent more funds to people with bad credit scores in the past few years to sustain growth, S&P said today in a report by analysts led by Mark Risi. The loans are also for longer terms, increasing the probability of default, the analysts said. About 68 percent of 2006 subprime auto loans were due in five years or more, Risi said.

``There could be some fallout from subprime in auto loans,'' Risi said in an interview. ``We don't have much data yet. We're still in collection mode. It's probably going to be hard to say for a while.''

The worst housing slump in 10 years is pushing down home prices, hampering owners from refinancing. Borrowers with weak or incomplete credit are also vulnerable to the resetting of mortgages at more than the teaser rates they initially paid.

U.S. mortgage foreclosure filings jumped 12 percent last month compared with a year ago. More than 130,000 homes entered foreclosure last month, according to a report today from RealtyTrac, an online list of foreclosed property. That's the second highest since January 2005.

S&P rival Moody's Investors Service said today that payments more than 60 days late on loans backing ``home equity'' bonds rose in December by the most since 1996.

Issuer Divergence

Late payments, foreclosures and seized property climbed 3.1 percentage points from a year earlier to 9.8 percent of the loans, which are mostly so-called subprime mortgages, the New York-based ratings company said in a report. That was the highest since 2002. Other types of loans included in the securities are second mortgages and home-improvement loans.

S&P classifies asset-backed car loan securities as prime, non-prime, and subprime, Risi said. About 0.31 percent of the prime loans made in the first quarter of 2006 have defaulted a year later, according to S&P. That compares to 0.8 percent for non-prime and 3.02 percent for subprime car loans.

Prime loans have cumulative losses of less than 3 percent with credit scores of 680 or more and current annual percentage rates of between 0 percent and 7 percent under S&P criteria.

Non-prime pools have net losses of between 3.1 percent and 7.5 percent with credit scores of between 620 and 680 and interest rates of between 8 percent and 13 percent.

Subprime securities have net losses above 7.5 percent with borrowers scoring less than 620 and annual percentage rates of more than 13 percent. About 71 percent of subprime auto loans in 2006 were used to purchase used cars and 68 percent of those loans are for more than five years, S&P said. Five years before, only 58 percent of subprime loans were for used cars and 33 percent were for more than five years.

Cumulative Losses

Subprime auto borrowers who are also homeowners may have ``exposure to affordability products and the related payment shock,'' said Risi. ``But the good news is, initial data indicates that the majority of subprime auto borrowers are renters, and are therefore not subject to the vagaries of the mortgage market.''

Subprime auto bonds are showing a wide disparity in performance depending on the issuer, the analyst said. With some subprime issuers moving further down the credit spectrum and some resisting that trend, ``we are seeing some interesting results from this divergence,'' Risi said. Bondholders cannot tell which subprime auto borrowers are also homeowners, Risi said.

Cumulative losses over 10 months for DaimlerChrysler AG's most recent loans is at 0.58 percent, its highest since at least 2000, S&P said.

Ford, General Motors

Securities originated by General Motors Acceptance Corp., that automaker's former finance arm, are showing losses of 0.18 percent, the lowest rate since 0.15 percent in 2002, according to S&P. Ford Motor Credit Co.'s loss rate is 0.25 percent, the same as in 2005.

Given a choice between making a car payment or paying the mortgage, consumers react in different ways, Risi said.

``Without much thought, you'd say people wouldn't want to lose their home so they'd first make the house payment,'' Risi said. ``But with a lot of the borrowers struggling to make their house payments, to get any cash, they have to get to work. And that's what they need their car for.''

To contact the reporter on this story: Mark Pittman in New York at mpittman@bloomberg.net.

Last Updated: March 26, 2007 19:28 EDT