Fitch Ratings is forecasting subprime mortgage delinquencies to rise as much as 10% to 15% in 2006 from current levels. The rating agency late last week released its structured finance outlook report for next year, which did contain positive news for the prime and Alt-A mortgage sectors.

While a sector of subprime borrowers are expected to begin defaulting on their loans as their adjustable-rate mortgage products reset into higher interest rates and subsequently larger payments, prime and alt-A mortgages should "remain stable in 2006, reflecting the strong economy and limited exposure to payment shock given concentrations in fixed and long-term ARM mortgages, Fitch wrote. The rating agency is anticipating that borrowers will continue to refinance their mortgages in 2006, primarily into ARMs with longer fixed periods, fixed-rate mortgages, the ever-popular option ARM and the 40-year mortgage.

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