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Performance of Home Equity Securities Reaches Milestone

The serious delinquency rate on home-equity loans pooled into securities has fallen to its lowest level in eight years, according to Moody's Investors Service.

Moody's said that in March of this year, 5.19% of securitized home equity debt was 60 or more days past due, a decline of 21% from the 6.59% delinquency rate posted one year earlier.

The charge-off rate in March was 0.83%, a 10% increase from the previous month. Still, Moody's said the charge-off rate remains "at historically low levels." The charge-off rate has been lower than 1% since September 2004.

Moody's said that the performance of home-equity loans has benefited from high levels of new issuance, robust housing markets and low interest rates.

While Moody's expects that the trend of declining rates will eventually reverse itself, Moody's said there was no sign of this happening yet. Issuance of new home-equity securities totaled $39.1 billion in March, a 21% increase from the same month one year earlier. During the first quarter, volume increased almost 34% from a year earlier.

The heavy volume of new issuance has contributed to lower weighted average seasoning. In March 2005, the weighted average seasoning for deals in Moody's home-equity index composite was 14.24 months, down from 15.74 months a year ago. That's a reduction of 9.6%.

The Moody's home-equity index consists of subprime, high loan-to-value and traditional home-equity categories. The subprime category represents the largest part of the index and represents more than 80% of the total, Moody's said.

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