February remittance reports showed that default rates reversed their course after rising the previous month, according to Bank of America Merrill Lynch analysts.

The month's reports reported CDRs dipped back in line with levels seen at the end of last year. All of the series now have default rates at around 10% CDR. The 06-1 series had the largest drop, dipping 6.4 points to 9.3% CDR.

The drop in the 06-1 series was partly a result of BSABS 05-HE11, which default rate declined to 7.8% CDR after being elevated at 52.9% in December.

The December increase was because of EMC Mortgage Corp. charging off a large number of uncollectible loans during that month, according to BofA Merill analysts.

There were three transactions that had interest shortfalls last month: BSABS 2005-HE11, SABR 2006-HE2, and SABR 2007-BR4, analysts reported. 

The BSABS deal as well as the SABR 2006-HE2 repaid their prior month's interest shortfall and covered this month's coupon.

But, SABR 2007-BR4 once again did not pay any principal or interest to bondholders for the month. All cashflow went to modification losses, non-recoverable advances, and capitalized amounts, BofA Merrill analysts said. 

This offering is serviced by Ocwen Financial Corp., which has been aggressively working out loans from its purchase of the HomeEq Servicing platform in September.

The 30+ delinquencies from this offering went from 43.2% in November to 33.8% in January. Analysts said that servicer actions will still be an important determinant in bond valuation.

This month, loss severities dropped for the 06-1 series, increasing slightly for 06-2 and 07-1, and up considerably for 07-2, BofA Merrill analysts said. Weighting for liquidation balance, changes in severities this month were -3.2, +1.8, +1.8, and +7.5 points to values of 79.9%, 83.8%, 91.7%, and 91.1% for the 06-1 through 07-2 indices. The severities, they said, have been rising in the past few months after being fairly stable for most of 2010.

"We have been anticipating higher severities prints due to ever extending timelines as the foreclosure process remains under scrutiny," analysts wrote. This was one of the reasons, they said, that supported their 07-1 PAAA short recommendation, which remains in effect. At this point, analysts feel the market is not pricing severity expectations enough.

According to BofA Merrill analsyts, the modification rates came in at 0.95%, 1.25%, 1.11%, and 1.21% of loans for 06-1 through 07-2, respectively. The levels rose for 06-1, flat for 06-2, and down 0.32 and 0.20 points for 07-1 and 07-2.

The modification rates drop for the 07-1 and 07-2 indices was affected by transactions serviced by Ocwen (HomEq) that experienced modification activity dropping versus the January remittance data.

For instance, analysts said the modification rates for SABR 2007-BR4 (in 07-2) decreased to 2.8% for the February remittance report from 4.3% of outstanding loans reported in January . However, Ocwen (HomEq) modification rates are still elevated versus other servicers, anlaysts said.

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