The June ABX remittance report showed constant default rates (CDRs) declining between 1.1 to 2.7 points across the indices, according to Bank of America Merrill Lynch analysts.
Delinquencies continued to decline this month, with most of the improvement stemming from rates of 60+ bucket. The decline reflects slowing current-to-30 day transition rates and efforts to work through modifications, BofA said.
Real estate owned (REO) levels were also stable across most indices, except for a slight decline in 06-1. Countrywide saw an increase in REOs this month in its 06-2, 07-1, and 07-2 deals, which indicates that it is starting to push through its delinquencies, according to the report.
Voluntary repayment rates remained unchanged across most indices, and cash reserve ratios (CRRs), aside from negative curtailments, increased slightly from the 06-1 index. They moved up to 2.3% from 1.7% in May. The 06-2 index, including negative curtailments, showed a negative CRR rate of -06%. The Bear Stearns ABS 2006-HE3 transaction, which printed a CRR of -4.9%, showed the biggest increase in negative curtailments as a result of capitalizations from loan modifications.
Except for 06-1, severities also improved for most indices in June. Severity rates for the 06-1, 06-2, 07-1, and 07-2 indices were 71.3%, 72.4%, 77.1%, and 77.6%, respectively (an increase of 1.2 points for the 06-1).
The 07-2 vintage showed the biggest improvement, with severities declining by an average of 4.7 points. The Countrywide, Home Equity Asset Trust, and Merrill Lynch Mortgage Investors deals within the index all showed substantial reductions in loss severities, the report stated.
Modifications rates remained level at 1.21%, 1.34%, 1.22%, and 1.61% of loans for 06-1 through 07.2 respectively. The subprime sector showed the most susceptibility to modification due to high levels of distress, with a cumulative 29% of subprime loans receiving some kind of modification.
BofA analysts predicted a slightly rising rate of modifications as the Home Affordable Modification Program (HAMP) trials become converted. They believe that a portion of those that fail HAMP trials will receive non-HAMP private modifications as a second option.