After credit and prepayment woes trounced home-equity lenders last week, there are empirical signs that the sector is rebounding.
And the improved picture today in the subprime sector belies the many players who are either out of the game or still struggling after last fall.
"While some lenders may have suffered because of the capital crunch, today the overall industry of lenders making loans to this credit class is getting back on track," said Martin Wahl, a director with Mortgage Information Corp.
According to an MIC analysis, the prepayment situation in particular has improved.
MIC possesses the nation's largest database of subprime loan information based on 1.5 million loans, including both those held in portfolio as well as those backing securitizations.
As of May, the six-month prepayment speeds fell for A-minus-, B-, C- and D-quality paper, Wahl said. "This drop in prepayment speeds increases slightly from high to low grades," he said.
Serious delinquencies - defined as 90 days or more late - ran marginally higher across grades from March to May, reflecting the aging of the subprime loan population, Wahl said.
The situation today is a far cry from September 1998 - the midst of the credit crunch. The constant prepayment rate from March 1998 to September 1998 rose by 11%, reaching 30% CPR for A-minus loans; 31% CPR for B paper, a 7% increase; 34% CPR for C paper, a 1% rise and 36% CPR for D paper, a 1% drop.
"This was not a pretty picture," said Wahl. "The lower-risk loans were paying off, while the higher-risk ones were staying on the books."
By March 1999, however, the situation had largely turned around. But this time, the CPR for A-minus had decreased by 1%, while B paper posted a 7% drop and C paper an 8%. D-quality mortgages rose 7%.
Ironically, this put most prepayment speeds below where they were a year earlier, when the subprime market was considered booming.
The picture for delinquencies runs somewhat parallel. In September 1998, it looked like subprime delinquencies were quickly getting in trouble, especially B and C paper, Wahl said.
From March 1998 to September 1998, the rate of serious A-minus delinquencies rose 4%, while B delinquencies jumped 10% and C delinquencies jumped 13%. D only went up 3%, but already had high delinquency rates.
By March 1999, however, B and C delinquency rate increases cooled down to 10%, even though delinquencies typically accelerate as mortgage pools season.
From March 1998 to March 1999, A-minus delinquency rates rose 14%, reflecting the seasoning of the mortgages, while D quality loans posted a 30% increase. - ES