The two subprime residential mortgage-backed securities vintages with relatively poor reputations for performance showed signs of stabilizing in the most recent month, according to Fitch Solutions.
While overall the company’s U.S. Subprime Total Market Price Index has moved very little in the past three months, 2006 prices have risen by 15% and 2007 prices have jumped by 10%. This contrasts with a significant price decline for those vintages in August.
Fitch director Kwang Y. Lim told this publication the price improvement in the two vintages is “tied to some of the sentiment around the success of the loan modification programs in stabilizing the delinquency rate, especially the serious delinquency rate.”
Among other trends Fitch noted in its subprime index report is a slowing of prepayments across vintages that likely will continue due to a combination of seasonal factors and the loans’ credit quality relative to today’s underwriting standards.
“From a seasonality perspective, prepayment rates typically drop as we move into the winter months,” the Fitch director said in an interview. “The reflection on aggregate loan credit quality is really in response to tight lending standards in the past couple of years” which makes it challenging for those borrowers to refinance.
