S&P: Only 1.06% of Residential MBS Default over 25-Year Period

Over the last 25 years, just 1.06% of residential mortgage-backed securities rated by Standard & Poor's have defaulted, according to S&P officials who recently spoke about their 2002 rating transition study.

But a surprisingly large share of the defaults occurred last year, despite strong home price growth and record low interest rates.

Over the past 25 years, 114 S&P-rated classes of residential MBS transactions have defaulted. Twenty of those defaults occurred last year.

The 2002 defaults involved two prime credit quality deals, nine subprime, six nonperforming, two home improvement and one high-LTV transaction.

As previously reported in NMN, S&P upgraded 634 credit classes last year and downgraded 106.

Robert Pollsen, an S&P analyst, said that less than one tenth of 1% of triple-A rated classes have defaulted in the history of S&P's residential MBS ratings.

And investment grade securities account for 86% of the upgrades.

"The higher the rating of the credit classes, the greater their potential for being upgraded," Mr. Pollsen said in a conference call to discuss S&P's rating transition study.

Tom Warrack, another S&P analyst, said that home price appreciation "has certainly stabilized" and that some markets on the coasts have even seen small declines in home values.

"There are certainly risks on the horizon that the market has not faced over the last several years," Mr. Warrack said.

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