In a report about the June remittance reports relased this morning, JPMorgan Securities said that whether June remittance reports were good, bad or ugly depended on who was asked.
According to analysts, short investors are adamant the results were ugly. Meanwhile, although analysts saw the performance data as bad, it was actually in line with their expectations as well as model projections.
"We believe there is fundamental value in ABX at current prices, which already
incorporate this poor performance," JPMorgan analysts wrote. "That said, the reality is that technicals will drive pricing, and we expect short investors can extrapolate weak data and push prices still lower."
In terms of interest shortfalls, which has been in the news lately, JPMorgan reported that most of the interest shortfalls for Ocwen Financial Corp. serviced ABX deals (with Wells Fargo as master servicer) were cured for this distribution date. For instance, in NHELI 07-2, analysts said that only the junior tranches (M-8, M-9, B-1) experienced interest shortfalls in the current period. They added that the more senior tranches had past shortfalls cured.
However, in the MABS 05-NC2 deal (which has U.S. Bank as the trustee), analysts said that the interest shortfall from the last period was not cured, but current period interest was paid.
According to JPMorgan analysts, the delinquency velocity is definitely slowing, which they consider a critical turning point. However, the delinquency trend that is currently in place must slow further in the upcoming months.
They said that it is not sufficient that velocity is slowing when new delinquencies remain very high, adding that subprime delinquencies are nearly irreversible. This is considering that there is an 80% implied roll to default for 30% to 59% delinquents.
JPMorgan also said that the average performance trends in each index are less relevant since ABX prices are still falling. They added that with lower prices, each ABX index's value is a result of the lesser number of transactions.
In ABX.06-2.AA, for example, a price of 23.25 implies that four to five deals will avoid write-down. "Investor focus should be on performance in those four to five deals, which in our view are CARR 06-WC1, MLMI 06-HE1, SABR 06-OP1, and SASC 06-WF2 in ABX.06-2," they wrote.
Analysts said that in three of these deals, the delinquency trend was better compared with the index average (CARR 06-WC1 was weaker, although OC remains fully funded). The approach applies to triple-As as well, they noted. For instance, JPMorgan stated that weaker performance in ACE 06-NC3, HEAT 06-7, and LBMLT 06-6 is not relevant for ABX.07-1.AAA, since these deals contribute no value to it.
Meanwhile, JPMorgan reported that 60+ delinquencies as a % of original balance increased by negative seven basis points(a dip), 27 basis points, 66 basis points and 105 basis points for ABX.06-1 through 07-2,which is a monthly rise that was a little bit lower compared with the change from May's distribution date.
The 60+ delinquencies as a percentage of current balance increased by 71 basis points, 142 basis points, 159 basis points and 161 basis points for ABX.06-1 through 07-2, JPMorgan reported.
In terms of cumulative losses, analysts reported that they reached 2.98%, 3.49%, 2.70% and 1.77% for ABX.06-1 through ABX.07-2, respectively.
Meanwhile, they said that the month-over-month changes in losses are broadly consistent compared with those from last month, with ABX.06-2 having the biggest rise from 42 basis points to 49 basis points. For transactions that offer severity data, analysts said that loss severities are still around 50% across ABX.06-1 through ABX.07-1, but were 57.6% for ABX.07-2.
