Index: Subprime Prices Hit a December 2008 High

Fitch Solutions' index of credit default swaps linked to subprime residential mortgage-backed securities shows subprime prices rose to a high not seen since December 2008 in the latest month. The index jumped 7.6% month-to-month to 9.37. Managing director Thomas Aubrey said subprime asset quality is not only stable but also significantly improved in contrast to historic lows at the beginning of 2010. Month-to-month, the 2004 and 2006 vintages rose 10% and 14%, respectively; the 2005 vintage inched up 2% and the 2007 vintage increased 12%. However, the particularly troubled 2007 vintage's increase brings it to a point that leaves it almost flat compared to the start of the year. The 2004 and 2006 vintages, in contrast, have seen 27% and 57% gains since the start of the year, respectively. Sixty- and 90-day delinquencies have improved across all vintages and three- and six-month constant default rates have dropped. However, the three-month constant prepayment rate has slightly improved, suggesting there could be a slowdown in the price index's upward trend. A peak in prepayments could signal the departure of higher quality borrowers from the pool, leaving the pools with a lower credit quality profile as a result of adverse selection.