As of press time, remittance data was out for 19 of the 80 ABX reference deals and not surprisingly October brings more headaches to the mortgage market. For all four indices, the average size of the monthly increase continued to grow, Deutsche Bank analysts said in a report.
Indeed, seven of the deals referenced in the 06-1 series, five of the deals referenced in the 06-2 series, five of the deals referenced in the 07-1 series and two of the deals referenced in 07-2 had taken a hit in the initial data.
Delinquencies were particularly large for the 06-1, which rose to 2.7% in October from 2.08% in September. The 06-2 rose to 1.73% from 1.29%. But the recent acceleration in credit deterioration for the 06-1 likely reflects, at least in part, the fact that many of the underlying loans have now passed their resets, the bank said.
Prepayment speeds are also declining, Deutsche Bank said, noting that one-month CPRs slowed during October in 18 out of the 19 deals in their sample. The average of one-month CPRs for the seven 06-2 deals slowed to 16.6 CPR in October from 25 CPR in June, while speeds for 07-1 deals slowed to 13.8 CPR from 19.4 CPR and 07-2 deals slowed to 8.4 CPR from 11.1 CPR.
And the bad news keeps coming. RBS Greenwich Capital analysts said in a recent report that they expected downgrades and headline problems for SIVs and CDOs after the remittance data came out last week.
That is not all. Total mortgage production will be down nearly 15% to $2.31 trillion this year from $2.73 trillion in 2006, according to the Mortgage Bankers Association. Total originations should decline another 18% next year as both purchase and refinance originations drop, the MBA said.
Refinance originations will slide about 15% to $1.13 trillion in 2007 from $1.33 trillion in 2006, the MBA said, citing the significant amount of loans that have faced or will face their resets this year and next year. "The tightening lending standards will significantly curtail activity in the subprime segment of the market." We believe, however, that recent and future Federal Reserve actions will help restore liquidity to financial markets, which will help support refi activity in the prime market in the coming quarters," the MBA said. Howeveras mortgage rates begin to climb in a stronger economy and boost demand for funds in 2008 and 2009, refi activity will decline by about 22 percent in 2008 from 2007 and about 18 percent in 2009 from 2008, they said.
The MBA also said it expected housing starts and home sales to reach bottom in the second and the third quarter of 2008, respectively. Total existing home sales for 2007 will decline by about 12% from 2006 to 5.72 million units. Sales will decline further by about 10% in 2008 before picking up by five percent in 2009, the MBA said.
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