According to the Fitch Ratings U.K. Non-Conforming Index, U.K. non-conforming RMBS deals showed a slight improvement in 2Q06. But analysts said that these improvements in arrears levels need to be considered in the context of the rise in sold repossessions, which have lead to exits from the portfolio that would have otherwise still remain part of these arrears figures.

"Stronger house price performance in the London area in recent months may have resulted in the rise in repossessions as lenders take advantage of the better recovery prospects in the more buoyant market," said Andy Brewer, a senior director at Fitch.

As these repossessed properties are worked out of the portfolios, Fitch predicts that an increased number of losses will crystallize. In the case of Farringdon Mortgages No. 1 Plc, a substantial rise in losses in the quarter ultimately led to the second drawing on its reserve fund. The amount drawn was GBP96,684.59 ($183,567.04), out of a total reserve on the previous interest payment date of GBP1,155,348. Total drawings now represent GBP312,872, being 22.81% of the maximum balance reached by the FM1 reserve fund of GBP1,371,535.

Repossession values

"The value of sold repossessions increased between the April and July quarter to 3.78% from 1.33% of the initial mortgage balance," Fitch reported. "Ultimately, it was the increase in losses in the quarter to 0.53% from 0.10% in the April quarter that had a negative impact on the available revenue funds." Fitch said there appears to have been an overall improvement in the level of delinquencies in FM1. However, the decrease may be due to the fact that the number of repossession cases has been worked out in the period.

The Fitch Index incorporates 2Q06 performance data - including delinquency and repossession statistics - for Fitch-rated transactions with over 12 months' seasoning. New additions to the Fitch Index are Leek Finance No. Fifteen plc, Preferred Residential Securities 05-1 plc, RMAC 2005-NSP2 plc and Southern Pacific Financing 05-B plc. Four deals have been removed: Mortgages No. 4 Plc, Residential Mortgage Securities 13 plc, TMC Tattenham No. 1 Plc and TMC Tattenham No. 2 Plc.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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