The amount of serious delinquencies in Moody’s Investors Service Home Equity Index Composite (HEIC) remained low during the first quarter of this year, according to a report released by the rating agency this morning.
Moody’s attributed the continued strong performance to the high issuance in home equity. Aside from the increased issuance, Moody’s said that the low delinquency rate of the HEIC has been due to the strong performance of the 2002 vintage subprime mortgage pools.
The rating agency calculates the delinquency and chargeoff rates for this Index as an average of the corresponding rate for each of the underlying pools. The rates are weighted by the current balance of each of the pools. The report said that because subprime mortgage issuance was considerable last year, these pools have a major impact on the overall index.
For instance, the 2002 subprime vintage was made up of 36% of the outstanding balance of the HEIC in March 2003. Moody’s said that serious delinquencies for the 2002 vintage are comparatively low to prior vintages at the same point in seasoning.
Moody’s also reported that the delinquency and chargeoff rates for both the high-loan-to-value (HLTV) sub index as well as the Traditional Home Equity sub index increased in the first quarter of this year. But the reasons differed for each sub indexes.
According to Moody’s, issuance of transactions that are backed by high LTV and home improvement loans is still low. This serves to heighten the weighted average seasoning of the sub index as well as to shift the overaperformance to where delinquencies and chargeoffs are higher in the seasoning curve. On the other hand, issuance in the traditional home equity sector remains robust. The characteristics of the pools that are backing these transactions have changed therefore causing a subsequent change in the behavior of the sub index.