In another blow to subprime, Moody's Investors Service released a report last week detailing a change in opinion on the quality of Delta Funding's collateral pool.
Moody's said that the unusually high level of delinquencies in Delta's existing pools suggest the obligators are of a lower quality than is standard in subprime pools.
"The reasons for Moody's change in the quality of Delta's collateral were initially provoked by our noticing a rise in delinquencies in a number of their mortgage pools," said report author David Burkhalter, a vice president and senior analyst at Moody's. "We wanted to wait until the end of the first quarter 2000, in order to draw a firm conclusion."
However, according to Burkhalter, one of Delta's strategies seems to have been balancing a lower-than-average combined-loan-to-value ratio (CLTV) with the poorer quality borrower, though the balance hasn't proved sufficient.
"Those CLTV's however, do not help offset the weaker-than-average borrower quality, the geographic concentration, and historical weaknesses in the company's income verification processes," Burkhalter said.
Not to be overlooked, however, is the agreements Delta has made with the regulators over the past several months - including the New York State Attorney General's Office, the State Banking Department and the U.S. Department of Justice - which will likely have a positive effect on the company's operations going forward.
"There's certainly a possibility that as a result of the agreements, and as a result of the monitoring process that is being put in place, the credit quality of Delta's loans will improve," Burkhalter said.
Delta officials have already stated that they have made several modifications in their loan origination procedures, one example being an improved income verification process.