June remittance reports were released yesterday and reflected a negative trajectory for ABX 06-2 and 07-1 indices that are backed by 2006 collateral -- which was expected. Specifically, deals in 07-1 continued to underperform. The referenced transactions for that index have been performing worse versus those for ABX 06-1 and 06-2, and the June data clearly reflected that trend.
Early yesterday, the ABX traded weaker based on early postings, according to a report from Wachovia Securities. Later in the day, "the tone was mixed and volume was light," said analysts. The indices finished the day down.
"The latest remittance report data was part of a "triple witching" of news affecting the HEL market that also included headlines surrounding the problems of prominent hedge funds and the release of Case-Shiller house price data," Wachovia analysts reported.
UBS analysts looked at the loss projections for 06-1 and their estimates range from 2.71% to 7.58% and average 5.14%. The individual transaction projections only slightly changed with the June data while the preliminary average increased from 5.12% to 5.14%, a .02% rise. For 06-2 the loss forecasts range from 4.42% to 14.69%, and the average increased 0.23%, from 8.59% to 8.82%. For 07-1 the loss estimates ranged from 6.12% to 16.56%. The firm's loss estimates for several deals changed a fair amount and the preliminary average loss for 07-1 rose 0.58%, from 10.76% to 11.34%. This is given the fact that the the 07-1 transactions are younger compared with those in 06-2 and -6-1, so UBS analysts are expecting to see more volatility in their loss estimates, although "both the magnitude of the loss estimates and the increases from last month, point to 07-1 as performing substantially worse than 06-2," UBS analysts reported.
The transition from the old subprime sector to one that is mroe troubled has only started, UBS said. Analysts think that the housing market will not show signs of recovery for a long time. This means that the market will continue to see comparatively poor performance in the ABX remittance reports, especially for 07-1, for at least the next six months or even longer, UBS analysts wrote.
Meanwhile, Wachovia Securities reported that the ABX.HE 07-1 is still showing particular weakness, with 60+ days delinquent rising more rapidly relative to their baseline 60+ delinquency curve for subprime mortgages. They added that delinquencies for 06-1 are continuing their trend, and the different constituents are packed in a comparatively tight dispersion. In the meantime, the 06-2 constituents are still drifting wider versus the benchmark and foreclosures rose in June versus May across all three indices, implying that there are still numerous problems that need to be worked through. Finally, Wachovia said that new trigger failures were seen in both the 06-2 and 07-1 indices. The 06-2 has risen currently up to 17 deals with delinquencies that exceed their threshold trigger level. With the upward trajectory for 07-1, analysts think it will catch up to the 06-2 in this area.
