Performance of U.S. Subprime RMBS from 2004 Deteriorates

U.S. subprime residential mortgage-backed securities from 2004 are seeing notable deterioration in performance while other recent vintages continue to show signs of stabilization, according to Fitch Solutions indices. "As the good quality loans are refinanced, the remaining pools are on average of lower credit quality, a factor that largely caused the drop in price for the 2004 Subprime Price Index," said Fitch Solutions managing director Thomas Aubrey in a report based on the company's credit default swaps of RMBS indices. "Credit quality among the pools will continue to converge over time as better quality borrowers take advantage of refinancing opportunities, thus leaving the pool with more consistent weaker borrowers." The 2004 vintage Subprime RMBS Price Index dropped by 16.7% to 11.57 in the latest month from 13.91 in the previous month, while the Fitch Total Market Subprime RMBS Price Index dropped more marginally to 8.02 from 8.40 and vintages from 2005 through 2007 experienced slight increases during the same time period. While refinancing affected the 2004 vintage, 2005-2007 vintages were less affected because their loan-to-value ratios precluded refis in many cases, according to Fitch Solutions.