Subprime mortgage loans considered seriously delinquent began to increase in August, while prepayments slowed amid rising short-term interest rates, according to a Friedman Billings Ramsey report released last week. Further, head ABS analyst at FBR Michael Youngblood, who authored the report, identified slight tiering among loan default frequencies from various issuers.

Overall, seriously delinquent adjustable-rate subprime mortgages crept up in August compared with the preceding month, with the 2000 vintage showing a 3.55% uptick to 20.4%; the 2002 vintage rising 2% to 10.1% from 9.98%; 2003 increasing to 6.48% from 5.93%; 2004 to 2.90 from 2.57% and this year's vintage increasing to 0.83% seriously delinquent from 0.62% in July.

Seriously delinquent loans in the 2001 vintage actually declined to 11% from 11.2%. Youngblood points out that the level of deterioration shown in the 2004 and 2005 vintages is consistent with rates seen in the 2003 origination year, while significantly lower than the relatively poorly performing 2000 through 2002 vintages seen within the same time frame.

Although some originators came out looking better than others, credit performance by issuer was in general widely varied by vintage. For example, adjustable-rate mortgage loans originated in 2000 by New Century Financial are 70.4% current - the worst among its peers according to FBR. Meanwhile, the lender's 2004 vintage is 96.2% current, slightly higher than People's Choice, where loans are only 90.9% current, or lending giant AmeriQuest Mortgage, where loans originated last year are 93.41% current.

GE Capital Corp. unit WMC Mortgage Corp. 2000-vintage loans are experiencing the highest overall loss percentage, at 5.51%, followed by AmeriQuest, where ARM pools are showing a 5.27% loss rate. Aames Investment Corp. originated loans, meanwhile indicate a 5.11% loss rate. All three were relatively high for the vintage, with the next closest FBR-surveyed issuer being New Century, which came in at 3.23% and Countrywide Home Loans at only 1.06%.

Subprime residential ARMs originated by Equity One are performing particularly poorly, according to FBR. At 26.6%, as more than one quarter of the lender's 2001 vintage are considered seriously delinquent; and for comparison's sake, the closest competitor to reach that many serious delinquencies in the vintage is New Century, with 18.9% of loans seriously delinquent. Equity One's 2002 portfolio is 17.3% seriously delinquent, although in this case New Century beats that number, with 17.8% of its loans in that vintage considered seriously delinquent. In 2003, however, Equity One again takes the top spot, with 12.9% of loans seriously delinquent.

The best performing of all the originators was hard to distinguish from the study, with many market players showing mixed results depending on vintage. Countrywide and Accredited Home Lenders were among the best performers though. Countrywide, for example, only shows a 1.94% of its 2000 subprime ARMs as seriously delinquent, an extreme divergence from its peers, who all show double-digit delinquency rates for the year.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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