Since high combined loan-to-value (CLTV) loans were first introduced in 1996, Standard & Poor's has continued to monitor the delinquency and charge-off activity of every high CLTV issue it has rated. In December 1998, Standard & Poor's announced the creation of the high CLTV performance matrix, designed to keep the market up-to-date on the performance of this highly controversial market sector, and to provide analysis of and commentary on current trends in the high CLTV market.

More Recent Issues Perform Better

Though delinquencies have continued to increase within each issue group, Standard & Poor's believes that, with few exceptions, these issues are performing within expectations. In addition, each issue group continues to outperform the issue group immediately before it. The most encouraging news involves the 19 transactions that were issued throughout 1998. Performance statistics recorded at the six-month mark for these issues are consistent with those of each of the earlier issue groups. After 12 months, the 1998 transactions have shown much less charge-off activity than those within each of the other earlier issue groups at the 12-month point.

Among the remaining 1996 issues, all of which were issued by FirstPlus Investment Corp. and have an average seasoning of 36 months, the percentage of delinquencies increased during the third quarter of 1999. Cumulative losses for this issue group increased by about 163 basis points, on a weighted average basis, over the second quarter of 1999. The percentage of delinquencies in the 30- to 59-day category rose by approximately 0.64%. There was only a slight increase of 0.13% in the 60- to 89-day category, and delinquencies aged 90 days or more increased by 0.11%. Furthermore, the weighted average constant prepayment rate for this issue group increased over the previous quarter's rate by 4.21%.

It should be noted that these increased percentages in delinquencies and chargeoffs suggest that these transactions are performing worse than they actually are. The actual aggregate balance of delinquent loans has declined since the previous quarter, and the percentages have been exaggerated by the depleted aggregate pool balances.

The excess spread amount for these transactions continued to decline in the third quarter, due to a combination of principal prepayments and losses, as well as the rapid repayment of the senior certificates. The senior certificates of each of the 1996 transactions generally receive lower pass-through rates than the remaining certificate classes do. As the senior certificates are paid in full, the weighted average pass-through rate of the transaction increases, contributing to the reduction in excess spread. On average, the senior certificates have been paid down to approximately 44% of the original certificate balance.

Standard & Poor's believes that the point at which delinquencies level off will come sooner among newer transactions, as issuers gain more experience with high CLTV loans and underwriting standards grow tighter. It is anticipated, therefore, that delinquencies and chargeoffs for the high CLTV product issued since 1997 will rise for 20 months to 30 months, level off, and then start to decline.

Default Percentages Among 1997 Issues

Stay Below 1996 Levels

As previously noted, the cumulative charge-off experience of the issue group from the first half of 1997 slightly exceeded that of the 1996 transactions at both the six- and 12-month benchmarks. After 18 months, cumulative chargeoffs for the issues from the first half of 1997 were approximately 3.55%, or 14 bps less than those among the 1996 issue group at the same 18-month point. Continued better performance than the 1996 group is noted at the 24-month milestone, when cumulative losses for the issues from the first half of 1997 reached 5.93%, or 41 bps below the level of the 1996 issue group at the same time since issuance.

In a more general trend, the developing loss curve of the more recent issue groups has generally remained below that of the 1996 issue group at each of the corresponding time benchmarks since issuance. Cumulative chargeoffs have increased for each of the issue groups, and the newer issue groups continue to show the smaller increases over the previous quarter at each six-month benchmark since issuance.

1999 Issues Inspire Optimism

During the third quarter of 1999, Standard & Poor's rated two transactions totaling approximately US$679 million. One deal, by Empire Funding, represents a former revolving structure that converted to a term deal.

Standard & Poor's anticipates that the 12 issues it has rated in 1999 will show performance results that are better than those of each of the prior issue groups. As the life cycles of these transactions lengthen, performance tracking reveals that, to date, the more recent securitizations have generally outperformed the older deals.

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