November remittance reports showed continuing performance deterioration, which was largely expected by Street analysts, though still dramatic.
For instance, the reports indicated that monthly aggregate 60+ day delinquencies rose by 25 basis points, 36 basis points, 172 basis points, and 139 basis points for series 06-1, 06-2, 07-1, and 07-2, respectively. Last month's increases were one basis point, 59 basis points, 178 basis points, and 142 basis points.
Barclays Capital, which has started to report loss severity beginning with the November remittance reports, said that for the month's distribution date, severity averaged 60.2% for Series 06-1, 61.2% for 06-2, 62.8% for 07-1, and 60.7% for 07-2. Analysts called the results "an absolute change from last month," which reported numbers of 1.2%, -1.1%, 2.2%, and -3.4% across the four indices.
The firm said that the considerable drop in 07-2 was a result of the MSAC 2007-NC3 transaction. The deal's severity dipped to 25% from 125%. "We believe this is a result of the timing in which the trustee reported liquidations and losses (i.e. subsequent losses from previously liquidated loans)," analysts said. They added that without this deal, severities on 07-2 actually rose by 1.6%.
Index collateral performance was weaker for all series and by delinquency bucket. According to Barclays, all delinquencies buckets - 30-day, 60-day, and 90+ - went up. Additionally, bankruptcy and foreclosure buckets rose on series 06-1, 07-1 and 07-2, but dropped on series 06-2. It is noteworthy, analysts said, that the REO bucket dipped across the four series, probably because of the recently enacted foreclosure legislation in California.
Up and Down
On the day the results of the November reports were released, JPMorgan Securities analysts noted that ABX pricing was a "rollercoaster ride." Prices were up by as much as eight to 10 points at the open, then sold off by six to eight points, and closed modestly higher on the day.
According to JPMorgan analysts, the gyrating price actions reflected equity market volatility as well as reactions to the Federal Reserve's announcement of the Term Asset-Backed Securities Loan Facility (TALF), which was structured to allow holders of triple-A ABS to borrow from the Federal Reserve Bank of New York against these securities. They added that the price movements were not based on the remittance performance data released on the same day.
JPMorgan analysts highlighted on Tuesday the previous month's significant dips in the ABX indices, noting that the senior tranches were down 5 to 15 points. The 06-1.AA experienced the largest loss, dropping approximately 15 points. They attributed this sell-off to Treasury Secretary Henry Paulson's announcement on Nov. 12 that the Troubled Asset Relief Program (TARP) would not be used to buy distressed mortgage-related assets as originally intended, but would focus instead on securitization and consumer ABS.
JPMorgan analysts remained underweight ABX, and suggested shorting the tranches with higher dollar prices and a bigger credit component - AAA and PENAAA for the 06-1 and 06-2 and PENAAA for 07-1 and 07-2. The firm's favorite shorts are 06-1 and 06-2 AAA and PENAAA.
Barclays reported total prepayments increased for series 06-2 and 07-2, but fell for 06-1 and 07-1. Defaults also rose on series 06-2, 07-1 and 07-2, but dipped on 06-1. Meanwhile, analysts stated that voluntary prepayments were mixed, and they are still questioning the accuracy of reported voluntary prepayment speeds.
A highlight of the report, according to Barclays analysts, is that the JPMAC 2005-OPT1 deal passed its triggers for the fourth consecutive month and released principal payments to noteholders. Specifically, the beneficiaries were class M-9 noteholders who received $4.3 million, or 28.5% of the original face amount.
Barclays analysts noted that the M-9 class is one of the constituents in the 06-1 BBB- index, and that the principal payments are equivalent to 1.4 points for the index. They reported that the margin by which the transaction passed its delinquency trigger stayed slim - 28.91% actual versus 29.66% threshold. It is hard to know whether this transaction will continue to pass triggers next month, the analysts said.
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