A Standard & Poor’s survey found that investors expect improvement in European RMBS collateral performance but marked deterioration in U.S. RMBS collateral performance.
In January, S&P's valuation and risk strategies group, part of S&P's fixed-income risk management services division (an independent group within S&P) undertook the latest quarterly Valuation Consensus Survey.
Started in 1Q09, the survey is aimed at offering greater transparency on the key input assumptions market participants use to value structured finance assets.
Investors' default rate forecasts for collateral in nearly all classes and vintages of U.S. RMBS have risen dramatically since S&P's previous quarterly survey, while predictions for European mortgage default rates have fallen across all classes and vintages with the exception of Spain.
The survey found that 12 month default rate expectations on certain U.S. RMBS collateral have doubled since the previous quarterly survey, with U.S. 2007 Alt-A pay option ARM RMBS collateral default rate predictions rising to 25% from 12% polled in the third quarter.
For the same vintage, U.S. prime fixed-rate collateral default forecasts rose to 5.75% from 4%; U.S. prime adjustable-rate collateral default forecasts moved up to 10.5% from 6.25%; and U.S. subprime collateral default forecasts increased to 34.36% from 23%.
By contrast, 12-month forecasts for U.K. nonconforming loan RMBS collateral default rates across an average of vintages fell to 4.61% from 9% polled in the third quarter.
For prime U.K. mortgage default rates, the 12-month average forecast for all vintages dropped to just 1.09% from 2%; forecasts for Italian and Dutch mortgage default rates dipped to 1.21% and 1.32%, respectively, while Spanish mortgage default expectations were stable at 2.8%.