Capital Markets

Thought Subprime Woes Couldn’t Get Any Worse?

The value of subprime mortgages securitized in 2006 is set to plummet.
Stephen TaubJanuary 31, 2008

The soundness of first-lien subprime residential mortgages securitized in 2006 has deteriorated considerably in the past three months, Moody’s Investors Service warned.

“Currently, the performance is much worse than that in prior years and shows a progressive deterioration in the performance of each of the year’s quarterly vintages,” the debt rater said in a new report.

As a result, Moody’s estimated that average losses on securitized 2006 mortgages will fall within the 12 percent to 24 percent range; losses will be about 9 percent to 13 percent for the first-quarter 2006 group, while losses for mortgages originated in each subsequent quarters will be progressively higher, with the fourth-quarter 2006 range pegged at 14 percent to 35 percent.

In October, Moody’s figured losses on 2006 securitized mortgages would range between 6.5 percent and 15 percent. Ratings for RMBS (residential mortgage-backed securities) are likely to be negatively impacted.

Separately, Bloomberg reported that defaults on privately insured U.S. mortgages rose 37 percent in December from the same month a year earlier, citing data from the Mortgage Insurance Companies of America.

In addition, the number of insured borrowers more than 60 days late on payments surged to a record 64,384 in December, from 46,921 in December 2006. Defaults increased 5.5 percent from November, the prior high.

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