No Sign of Turnaround for 2005, 2006 Vintages

Moody's Investors Service says that mortgage securities backed by nonprime home loans that were issued in late 2005 and in 2006 continue to deteriorate.

Moreover, Moody's sees no signs that the trend toward weakening credit quality slowed down in the second half of last year.

The securities issued in that time period continue to have markedly higher rates of foreclosure, real estate-owned and pool losses, a trend that Moody's first noted became apparent as early as six months after the deals were issued.

While the early credit weakness primarily involved subprime credit quality loans, it was not limited to that sector, Moody's said. Alt-A and prime securitization deals also saw credit deterioration.

Moreover, the trend toward progressively worse performance on newer securitizations continued into the third and fourth quarters of last year, Moody's said.

And the weak performance of deals issued in the second half of 2005 and the first half of 2006 persist after 12 months of seasoning, Moody's said.

Subprime collateral defaults from deals issued in the second quarter of 2006 were more than four times as high as the average rate on deals issued between the first quarter of 2002 and the second quarter of 2005, Moody's said.

In short, if you were hoping for some good news on loan performance, you may have to wait until deals issued in 2007 are well seasoned enough for analysis.

To date, Moody's has downgraded or placed on review 496 first-lien MBS issued in 2006, or 3.04% of the first-lien MBS tranches rated by Moody's.

"The collateral default data ... indicate continuing deterioration in the credit performance of recent residential mortgage pools," Moody's associate analyst Joseph Rocco said in a report.

Snapshot: Six Month Private-Label MBS Collateral Default Rates

Increase Over

Q4 '6 '02 - '05 Avg.

Subprime 3.54% 264 basis points

Alt-A 0.94% 76 basis points

Prime 0.07% 5 basis points

Source: Moody's (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/