Bangkok--27 Mar--Standard & Poor's
In an effort to shed some light on how subprime residential mortgage-backed securities (RMBS) issued in 2006 will fare over time, Standard & Poor's Ratings Services has published a report comparing the performance of these deals with those issued in 2000. In the report, Standard & Poor's stated that the current expected loss expectation for the 2006 deals is between 5.25% and 7.75%. The report also noted that while most 'BBB' and 'BBB-' rated classes are protected from losses, they are likely to see higher default rates than other similarly rated classes in recent history.
Overall, the 2000 and 2006 vintages exhibit very similar delinquency statistics during their first year of performance. Beyond those similarities, however, the two vintages have little else in common.
"The number of total and serious delinquencies for the 2006 vintage is consistently higher than for deals issued between 2001 and 2005," said credit analyst Michael Stock, a director in the U.S. RMBS ratings group at Standard & Poor's. "However, the loans in the deals issued in early 2006 have nearly the same level of serious delinquencies after just 12 months of performance as those in the 2000 vintage, which had 6% in serious delinquencies after one year of performance."
In addition to examining the early payment default trends of rated subprime transactions issued between 2000 and 2006, the report provides observations on the economic environment in which the 2000 and 2006 vintage deals were issued. For example, the 2006 deals contain loans made to borrowers with higher FICO scores than in the 2000 vintage. The newer transactions also include loans with larger balances, a factor that plays a role in the amount of losses in cases where a property needs to be liquidated.
But the 2000 vintage has some advantages over the later deals as well. For example, interest rates were lower six years ago, with mortgage and LIBOR rates hitting record lows between 2002 and 2003. Mr. Stock also noted that voluntary prepayment speeds were faster in 2000, and home price appreciation has slowed quickly in recent months.
"Given our observations from our research, combined with our expectation that the U.S. economy will not experience a recession in the next two years, we believe 7.75% should be at the high end of our subprime loss assumption for the 2006 vintage," Mr. Stock said. "Our loss assumption also considers the relatively weak housing market, and we assume that home price appreciation will be stagnant this year and that home prices will return to a more traditional growth rate of 3%-4% after 2007."
The information above is contained in a detailed article, "A Comparison Of 2000 And 2006 Subprime RMBS Vintages Sheds Light On Expected Performance," published March 22, 2007, on RatingsDirect.
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected] . Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com ; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided.
Analyst Contacts:
Michael Stock, New York (1) 212-438-2611
Scott Mason, New York (1) 212-438-2539
Media Contact:
Adam M Tempkin, New York (1) 212-438-7530