It was bound to happen sooner or later. January remittance data have finally left analysts struggling to find new ways to deliver the same old bad news.
"Credit performance of the ABX indexes is still terrible, in our opinion," wrote analysts for Wachovia Securities. "In fact, it is increasingly difficult to find new synonyms for the word increase' to describe the direction of nonperforming loans."
Wachovia actually called the prices of numerous ABX indexes "beyond terrible." Delinquency rates rose at a steady clip, according to the analysts, with the more seasoned deals displaying smaller delinquency rates in January.
According to Wachovia, total losses for the Series 06-1 index averaged 5.1% for deals with an average of 30 months of seasoning. The 06-2 deals had an estimated 10.1% loss on average for deals with 25-month average seasoning. Deals with an 18-month seasoning netted losses totaling roughly 12.2%, according to the 07-1 index.
The pace in 30-day delinquencies continued to surge for the ABX 06-2, ABX 07-1 and ABX 07-2 by 51 basis points, 27 basis points and 56 basis points, according to UBS analysts. The pace of 60-day delinquencies also increased for the ABX 07-1 and ABX 07-2 while the rate of delinquencies dipped down for the 2006 counterparts, UBS wrote.
While JPMorgan Securities analysts also reported increasing ABX delinquencies, they did not see an acceleration in levels for January compared to December. The analysts placed the dreadful performance numbers in the context of ABX pricing, which implies that cumulative losses will rise to 20% and higher for a handful of deals that generate AAA' write-downs.
"Despite the support from monetary and legislative channels, and low cumulative losses to date, the existing delinquency pipeline will mean complete write-downs of BBB' and BBB-', and A' tranches of ABX 06-2 and later vintages," according to JPMorgan. REO timelines will be extending six months, and loss severity is also on the upswing, the analysts noted. Loss severities for 06-1 reference entities are in the 50% to 60% range, with the life-to-date severity at roughly 40% to 45%.
Barclays Capital's data were mixed, with aggregate 60-day delinquencies increasing 248 basis points, 280 basis points, 207 basis points and 264 basis points on a month-over-month basis compared with increases of 316 basis points, 166 basis points, 226 basis points and 262 basis points last month for Series 06-1, 06-2, 07-1 and 07-1, respectively. The absolute level of delinquencies continued its upswing, but three of the four indexes leveled out on a month-over-month basis.
Prepayment numbers continue to suffer from low levels across all index series. Aggregate prepayment speeds were reported at 25 CPR at 31 WALA, 34 CPR at 26 WALA, 14 CPR at 19 WALA and 11 CPR at 14 WALA for Series 06-1, 06-2, 07-1 and 07-2, according to Barclays. These prints remain well below historical levels at similar WALA, the bank said.
Analysts are also keeping a close watch on the roughly $460 billion in ARMs that are planned for reset this year. Approximately $200 billion of subprime ARMs will reset, according to Wachovia, and the "uncertainty about the fate of these borrowers," the analysts wrote, "is a significant headwind for the ABS market." This uncertainty, along with continued price volatility and concerns about the state of the U.S. consumer, has resulted in wide spreads and weak demand for anything below AAA' performance.
Citigroup Global Markets analysts have dubbed this year The Great Reset Surge of 2008 in which the percentage of loans moving into delinquency or default within six months of reset has increased to 35% from 15%. Constricted refinancing opportunity, negligible equity and moderate payment shock thanks to recent rate cuts are working against borrowers facing reset, the bank said.
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