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Market Churns Out ABS Despite June Remittances

spite a spike in prepayment rates for resetting loans and dramatic increases in delinquencies, losses to the ABX were relatively contained early last week. Similarly, pricing activity for other securitization sectors was mildly affected.

Delinquencies for the 2006-1 ABX index increased significantly, according to Credit Suisse, reaching nearly 14% by the end of June, an increase of about 8.3%.

"We believe that the sharp rise in the 60+ delinquency of ABX 06-1 was partly caused by the rate reset as the deals faced adverse selection from faster prepays and payment shock as borrowers faced post-reset payment shock," wrote Credit Suisse analysts in a midweek edition of Market Tabs last week.

Other vintages showed weakness in the June reports. Delinquencies among loans aged 30 to 59 days were up 11% in the 2007-1 Index, 9% for the 2006-1 group and 5% for the 2006-2.

This update further tested an ABX market that was already strained going into the week. Over the past month, according to Credit Suisse, the triple-B-minus indices dropped about 13 points for the 2006-2 and 2007-1 and eight points for the 2006-1. When remittance numbers were released last Monday, the market had just come off of a substantial selloff. Although remittance numbers were taken negatively, the sentiment was contained, and the index closed only two points lower on the day the numbers were released.

The remittance results produced mixed pricing talk among announced HEL deals last week, however. The one-year, triple-A rated portion of Newcastle Mortgage Securities Trust's $1 billion deal was estimated to price at 11 basis points over the one-month Libor and pricing on triple-B rated paper was expected to range between 225 basis points and 550 basis points.

Also, the market talked the triple-A, two-year piece of Nationstar Home Equity Loan Trust's $942 million issuance at 16 basis points and the single-A, 4.71-year piece at 160 basis points over the benchmark.

On the other hand, regarding the $788 million Countrywide Asset-Backed Certificates, 2007-11, the triple-A one-year piece was holding the line for pricing talk at six basis points over the one-month Libor, but a nearly five-year double-B piece was being talked at 850 basis points over.

Pricing talk on the $175 million Security National Mortgage Loan Trust was at 75 basis points over swaps for the triple-A, two-year piece and 140 basis points over swaps on the 7.66-year piece, also rated triple A.

Among deals that priced, the GMAC Mortgage Corporation Loan Trust completed a $1.2 billion, second-lien deal at wider levels than anticipated, despite its triple-A ratings throughout. The .90-year tranche priced at 14 basis points over the one-month Libor. Several tranches priced noticeably wider that guidance talk, including the two-year piece, which was talked at 55 basis points to 56 basis points, but came in at 58 over. The 6.91-year tranche was talked at 91 basis points over, but priced at 100 basis points over.

"We expect the ABX to demonstrate continued price weakness that may give way to occasional technical/short covering rallies until mid-July," wrote Barclays Capital analysts. "Firming price action is likely to be limited as the index succumbs to downward price pressures leading up to the July remits."

The ABS week was not all about the ongoing problems in the ABX, however. Among the $9 billion expected to price throughout the week, an auto and a credit card ABS transaction provided alternatives to the wobbly mortgage-related transactions. The GS Auto Loan Trust saw its short-term piece price at two basis points under Libor, while the triple-B, 1.42-year piece came in at 42 over swaps.

The single-tranche, $1 billion Chase Issuance Trust came in at four basis points over the one-month Libor.

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