S&P Survey: Home Prices Nearing Bottom

U.S. residential mortgage-backed securities investors believe home prices will hit bottom while default rates will improve in the next 12 months, according to a survey conducted by a unit of Standard & Poor's. The Valuation Inputs Consensus survey tracks valuation projections of 64 institutions active in the U.S. and European structured finance markets. Expectations for default rates for loans included in 2007-vintage RMBS are down to 12% from 30% in the second quarter 2009 survey for alt-A and to 23% from 30% for subprime loans. However, prime fixed rate loan delinquencies for 2007-vintage RMBS trended up from 2% for the second quarter survey to 4%. "Because the majority of poorly performing securitized U.S. mortgage loans have already defaulted or paid down, default rate forecasts for underlying collateral on U.S. alt-A and subprime RMBS are stabilizing versus expectations for U.S. prime RMBS," says Peter Jones, global head of S&P's Valuation Scenario Services business. "Furthermore, default rate expectations for U.S. mortgage loans — although improving across most asset classes — remain significantly higher than U.K. loans, which are expected to deteriorate across all classes. Clearly, respondents see the U.K. and U.S. assets in two very distinct ways." Investors in RMBS secured by properties in the United Kingdom believe the default rates on non-conforming loans will climb from 8.2% over the next six month to 9.8% for the period covering 12-to-18 months from now. They expect home prices there to fall 7% in the next 12 months; in the second quarter survey, they expected a 10% decline.