The ABX reports released late Friday showed 60+ delinquencies increasing, although at slightly slower rates. Analysts from Merrill Lynch attributed the rise to seasonality. The delinquency increase for the ABX indices was expected and is based on the roll rates and the 30-59 and 60-89 day delinquency pipelines. However, the pace of increase in 60+ day delinquency levels seems to be slowing.
The likely reason is simple seasonality based on tax rebates that arrive in the spring, analysts said. The effect is obvious looking at the ABX 06-1 index both currently and one year back, Merrill said. Of course, this does not necessarily indicate better performance, despite the better numbers, Merrill analysts said.
Merrill also reported that prepayments are still slow across all series. Prepayments speeds have slowed considerably from historical levels in the last few years. Considering the limited refinancing opportunities available, prepay speeds are commensurate with the environment.
For instance, analysts said that the 06-2 index has seen a lower reset prepayment speeds compared with the 06-1 index. The 06-2 deals show 25% three-month CPR at 27 WALA, compared with 41% for their 06-1 counterparts, Merrill said