Remittance reports for the March distribution date or the February collection period reflected a turnaround in default trends, Barclays Capital analysts said. The gain was around 1 CDR, which follows a steady decline over the past few months.

Barclays analysts said that the CDR rise came along with lower delinquencies overall. Defaults rates, analysts said, rose in three out of the four ABX indices. This happened even as 60+ delinquencies dropped and as servicers are still converting HAMP trials into permanent modifications and are moving loans from deep delinquency into current status, analysts stated.

In terms of loans that are declined a permanent modification, the servicer is required to consider a short sale before moving on to the foreclosure process, which could increase liquidation rates. The share of outstanding loans in foreclosure dropped 70 to 80 basis points, while REO% also dipped slightly. With servicers starting to slowly flush out their bloated REO and foreclosure pipeline, distressed supply should begin to rise, which puts pressure on home prices.

There was also a mild decrease in early stage delinquencies, as the 30+ delinquent number dropped 50 to 60 basis points across indices. This, Barclays analysts said, could mean declining current-to-30 day delinquent rolls for the second month running after a 20 to 30 basis point drop in rolls in February.

In terms of severities, numbers continued to be choppy on a deal level but were up two to three points overall from last month. Th severities have been increasing for the past few months as liquidation timelines rise and servicers extract P&I advances from any recoveries on liquidated loans, analysts said.

Prepays were lower on the 06-1 and 06-2, while finishing slightly higher on the 07-1 and 07-2. In the absence of refinancing opportunities, we expect prepays to remain depressed in the near future.

While a full picture of the extent of modifications will only be seen with the release of loan-level data, the remittance reports actually offer some pointers. While the HEAT shelf continued to lead the way in principal forbearance modifications, this month there were considerable principal modifications in RFC deals as well.

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