Fitch Sees Decline for Subprime Mortgage Assets

Prime and alternative-A mortgage asset performance will remain stable next year in the United States, but subprime asset performance will decline, according to Fitch Ratings.The refinancing trend is expected to continue, but at a slower pace as rates rise, the rating agency said. The prospect of higher rates on adjustable-rate mortgages will increase the percentage of refis into fixed-rate mortgages, ARMs with longer fixed periods, option ARMs, and 40-year mortgages, Fitch predicts in a report titled "Global Structured Finance: 2006 Outlook and 2005 Review." Noting the "excellent performance" of subprime assets over the past two years, Fitch foresees a dropoff in performance "as higher rates and slower home price growth curtail the cash-out refinancing boom and cause some borrowers to experience payment increases on ARM loans." Delinquencies on subprime assets may rise as much as 10%-15%, but credit enhancement on subprime securities has risen rapidly and "should help protect bonds from the expected decline in loan performance," Fitch declared. The rating agency can be found online at http://www.fitchratings.com.