Much attention lately has been paid to the prospective performance of subprime mortgages originated to borrowers this year. The 2005 vintage, some say, consists of borrowers that either needed to refinance to avoid payment shock from earlier originated mortgages, or, borrowers that couldn't get a loan until lending standards reached down far enough to scrape them off the credit barrel's bottom.

But, in a report last week, Bear Stearns sought to refute anecdotal evidence of worse performance, at least so far, among the 2005 vintage. "Intuitively, we see little reason to expect weaker initial performance by 2005 borrowers, as collateral characteristics are comparable to the 2004 vintage and primary mortgage rates have stayed stubbornly low," Bear researchers wrote.

Bear found that 2004 vintage deals and 2005 vintage deals were quite similar in a number of ways. For example, the average FICOs were 617 and 618, respectively; weighted average coupons were 7.12% and 7.14%; and the percent baring full documentation were 60.1 and 58.2. The percent of IO loans originated to the 2005 vintage did increase slightly over 2004, to 24.5% from 15.3%, which, Bear wrote, signifies a lower payment burden and subsequently a lower rate of early-stage delinquencies.

Statistics for the 2005 vintage analysis performed by Bear were taken from an analysis of 116 deals, maintained by LoanPerformance, comprising $114 billion of issuance across 35 issuers. Eighty-five percent of the data was taken from the first and second quarters of this year.

At the nine-month mark, Bear found that 30-plus day delinquencies among this vintage were 3.94%, compared with 3.41% for nine-month-old 2004 loans. Stretching those early delinquency statistics over time, the gap between the 2004 and 2005 performance "shrunk considerably and 2005 actually outperformed the 2004 vintage," Bear wrote. Accounting for higher prepayment rates within the 2005 vintage, Bear found that the vintage outperformed 2002 and 2003 vintages, and had "marginally higher" delinquencies compared with the 2004 vintage.

However, Bear concluded that other factors could negatively affect the 2005 vintage performance and the information should not "be construed as representing that all is fine and hunky-dory with the subprime market."

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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