Moody's Investors Service released new indexes for Jumbo collateral. The aim of these indexes is to better assess the state as well as trends in the sector's credit quality. This set of indexes will allow the rating agency to track the delinquency, loss and prepayment performance of jumbo mortgage pools. Moody's Jumbo Mortgage Indexes use performance data from over 1,600 jumbo mortgage pools securitized since January 2001.

Although the rating agency expects Jumbo performance to remain comparatively strong, several factors that are on the horizon could potentially cause the performance of these mortgage pools to weaken versus historical averages. Whereas in the past, falling interest rates, home price appreciation and high levels of refinancing have resulted in considerably strong performance.

"Most investors expect the pools to perform well, which is similar to Moody's expectations," said Peter McNally, an analyst at Moody's. "As the market starts going through a different cycle, the sector's performance would not be as strong, even though it will still be good."

"Over the last three years, there has been strong performance and good mortgage characteristics," said Bruce Fabrikant, senior vice president at the rating agency. "However the economy is weakening so this performance is expected to deteriorate, although it is deteriorating from a strong base."

Despite the factors in its favor, Jumbo product is also subject to the rising interest rates that are expected to dampen prepayments, and could result in increased default rates while placing payment stress on IO and hybrid ARM borrowers. They are expected to face rate resets as well as payment shocks. A less robust housing sector might also result in fewer mortgages being paid off on account of borrowers selling their homes, possibly causing higher defaults and greater loss severities.

Moody's seven major jumbo mortgage indexes measure, among other things, the 30-59 day delinquencies; 60-89 day delinquencies; 60+ day delinquencies; 90+ day delinquencies; foreclosures; REO; and one-month CPR.

According to the data through the April 2006 reporting period, delinquencies that peaked in mid-2003 have dropped overall through last September. It increased sharply over the next two months then once again stabilizing over the following months.

This increase in delinquencies seems to be an isolated wave that might be partly attributed to Hurricane Katrina.

Trends in prepays have been very closely linked to interest rate movements. Prepayments have fallen considerably since the summer of 2003, when 30-year mortgage rates were at their lowest point, Moody's said.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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