February remittance data offered almost no surprises, which, given the state of the struggling economy, means more bad news. The increase in delinquencies and foreclosures came with a slowdown in prepayments, although the rate of some losses has tailed off from the previous month.
Barclays Capital analysts reported a month-over-month 60+ day slowdown in serious delinquencies for Series 06-1, 06-2, 07-1 and 07-2. The delinquencies increased by 7% (down from 9%), 9% (down from 11%), 8% (down from 9%) and 14% (down from 17%) respectively.
But despite the slowing delinquency numbers, Barclays' analysts cautioned investors that "there is a fair degree of seasonality that will be at work during the next couple months." The past several years have shown a noticeable trend in declining 30-, 60- and 90-day delinquencies during the February and March collection periods, according to Barclays, but then an upswing beginning with the May remittance data.
Barclays' research also found an increase in bankruptcy, foreclosure and REO readings across all index series, "offsetting some of the improvement in 60- and 90-day delinquencies. The foreclosure bucket growth rates have moderated somewhat, but REO increases accelerated across the board," Barclays wrote.
While JPMorgan Securities analysts also noted a slowdown in month-over-month 60+ delinquencies, with the exception of ABX.06-2 for the second month in a row, they pointed out that absolute delinquencies are still trending upward. Losses are still in their early stages, according to the bank, but have consistently increased for the past few months.
The bank also noted that the slow one-month CPRs show limited refinancing options for subprime borrowers. Perhaps most distressing, JPMorgan wrote, is that "lower interest rates are unlikely to stimulate refinance activities, especially in the context of mark-to-market LTVs and near-elimination of many subprime loan products."
Prepayments have slowed significantly from historical levels, according to the latest remittance data. The 06-2 index has lower reset prepayment speeds than the 06-1 index, according to Merrill Lynch analysts. "Given the limited refinancing opportunities available, prepay speeds are commensurate with the environment," they wrote.
Aggregate prepayment speeds were reported at 24 CPR at 32 WALA, 28 CPR at 27 WALA, 16 CPR at 20 WALA and 11 CPR at 15 WALA for Series 06-1, 06-2, 07-1 and 07-2, respectively, according to Barclays. The low prepayments will lead to increased delinquencies among borrowers who have already reset.
Looking at the GSEs, Morgan Stanley expects single-family delinquency rates for Fannie Mae and Freddie Mac to have risen in January, although the numbers will not be released until late March. But using the available securitization data, Morgan Stanley forecasts Freddie Mac's delinquency rate to increase to 0.73% in January from 0.65% the previous month.
Fannie Mae's delinquency rate, meanwhile, will see an uptick to 1.22% from 1.10%, according to the analysts. Morgan Stanley also reported that the delinquency rates for Alt-A and prime continue to accelerate while rates for subprime have been increasing at a "more or less" steady rate over the past few months.
In addition to the increased delinquencies and losses, JPMorgan found a distressing number of modified loans that have defaulted again after receiving a loan modification. In ABX 06-1, about 18% of the 152 modified loans have re-defaulted; in ABX 06-2, nearly 38% of the 116 modified loans have re-defaulted.
"While it is still very early into the loan modification process and the sample pool is quite small, such results are not encouraging," JPMorgan wrote.
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