Fitch Ratings expects the recent rate of improvement in U.S. residential mortgage bonds will moderate over the next year as home price appreciation slows.

Rising home prices tend to reduce late payments and mortgage defaults, because the more equity borrowers have in a property the easier it is to sell or refinance to lower their monthly payments. And Fitch has observed that the regions of the U.S. with the largest price gains have experienced greater improvements in borrower delinquencies and prepayment rates, as well as liquidation timelines and loss severities on liquidated properties. Conversely, in regions that have experienced little to no price increases, performance has improved only marginally.

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