Alt-A and Subprime Delinquency Rates Continue to Decline

by: Research Recap

Delinquency rates continued to decline for both U.S. Alt-A and Subprime RMBS last month, according to Fitch Ratings.

U.S. Alt-A RMBS declined for the second consecutive month following a steady four-year increase. Subprime late-pays also fell for the third straight month, while prime RMBS delinquencies increased slightly.

However, the improvements in delinquency rates were tempered by the bounce back in roll rates. ‘A sustainable decline in delinquencies is difficult to achieve without an accompanying decline in roll rates,’ said Managing Director Vincent Barberio. Additionally, ‘The short-term beneficial effect of tax refunds may have run its course.’

Alt-A RMBS delinquencies decreased to 33.9% in May from 34.1% in April (up from 28.3% in May 2009), representing the second month-over-month decline since April 2006. After falling sharply in April, roll rates rose to 3.1% in May from 2.6%. Prior to last month’s improvement, roll rates had not been below 3% since June 2008.

Subprime RMBS delinquencies fell again in May, down to 44.8% from 45.2% the prior month. They remain above the 40.7% rate of a year ago. The roll rate for May rose to 4.3% from 3.9% the prior month and but remained well below the trailing 12-month average of 5.4%.

Despite the change in performance, Fitch cautions that approximately 9% of performing Alt-A loans and 37% of performing subprime loans are modified and have a substantial risk of re-default.

Prime jumbo RMBS 60+ day delinquencies rose to 10.3% for May up from 10.2% for April and 5.9% a year ago. After nearly tripling in 2009, delinquencies are up another 1.1% since the beginning of the year. May roll rates rose above 1% after dipping below that level in the prior month but remained below their highest-ever level (1.4%) in Performance Metrics history, which was recorded in March.

For details, see Fitch RMBS Performance Metrics

Meanwhile, U.S. subprime cds prices are now at levels not seen since December 2008, according to Fitch’s Subprime RMBS Total Market Price Index .

The index continued its dramatic rise with a 7.6% month-on-month increase to 9.37. ‘Subprime asset quality has not only stabilised, but begun to improve significantly, a far cry from the historic lows at the beginning of 2010,’ said author and Managing Director Thomas Aubrey.