The rise in delinquencies for the ABX indices was not surprising based on the roll rates and the 30-59 and 60-89 day delinquency pipelines.
The 30-59 day delinquency bucket appears to be leveling off across each index. Prepayments also remained slow across all series.According to a Merrill Lynch report, prepays have slowed considerably from historical levels over the last few years.
Analysts said that considering the limited refinancing opportunities available, they are commensurate with the environment. For example, according to Merrill, the 07-2 deals show 18% one- month CPR (voluntary plus involuntary) at 19 WALA, compared with 25% for their 06-1 counterparts at the same WALA.
In a related report, UBS said that the 30-day DQ bucket, which they consider the leading indicator of ultimate defaults, restarted its upward trend after several months of mixed behaviour in which some indices were up while many others were down.
As analysts pointed out in several earlier reports, 30-day delinquencies have a very strong seasonal component and because of that we expected to see rise in the summer months. The increases in other DQ buckets also support our
gloomy outlook for subprime losses.
Analysts added that the data this month also showed signs that servicers are starting to modify more loans in a manner that produce anomalies in the DQ data. In several trasactions, including GSAMP 2005-HE4 in ABX 06-1, the 90+ day DQ bucket rose sharply while the FC bucket dipped sharply. For the GSAMP deal this shows up in our 60+ DQ which increased from 5.02% in July to 17.26% in August.
Meanwhile, the REO + FC bucket dropped to 18.16%. from 29.41%. Also this month the 60+ DQ for MABS 2005-NC2 (in ABX 06-1) dipped to 10.58% from 26.66% while its REO + FC increased form 20.91% to 35.13%, reported UBS.
These sharp changes are far outside the normal month-to-month changes and suggest theservicers are applying new standards in the way they treat seriously delinquent loans. UBS said that it is too early to decipher exactly what this means for subprime ingeneral and particularly for the ABX, although analysts are attempting to "unravel" these developments to understand their ultimate impact.