The credit performance of subprime mortgage-backed securities issued in 2007 is no better than that of the subprime MBS issued in 2006, according to a Friedman Billings Ramsey report that challenges the assumption that lenders became more conservative in their underwriting earlier this year."We find scant evidence that the risk characteristics of subprime loans originated in 2007 differ significantly from those of subprime loans originated in 2006 and 2005. Therefore, we cannot conclude that lenders have reversed" their liberal underwriting criteria, FBR managing director Michael Youngblood said. The default rate on adjustable-rate subprime MBS issued in 2007 jumped 44% in August, rising from 2.80% in July to 4.04%. This is higher than the average 3.05% default rate for subprime MBS issued in previous years at the same age. "We note that the leading mortgage banking company in the United States, Countrywide Financial Corp., did not fully revise its underwriting criteria for subprime mortgage loans until August 15, 2007," the FBR report says.

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