Thanks to the housing recovery, legacy subprime mortgage bonds are performing better than they used to. But home price gains only go so far in areas where foreclosures take longer - and are therefore costlier - because they go through the courts.

"In 2013 and 2014, we've seen some improvement in the loss rate on subprime MBS thanks to home price appreciation. But when it comes to judicial states, we sometimes don't," says Jiwon Park, analyst at Moody's Investors Service and the author of a recent report on the topic.

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