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| Quarterly nonprime performance deteriorated.
Delinquency of 60 days or greater jumped to 9.22 percent during the fourth quarter from 7.61 percent the prior quarter, according to Moody’s Home Equity Index Composite announced today. Sixty-day delinquency was also up from a year earlier, when it was 6.65 percent. The composite index primarily reflects three subindexes including subprime, high loan-to-value and traditional home equity, Moody’s noted. Other categories include Title 1. Charge-offs rose to 1.15 percent in the latest period from 0.94 percent in the third quarter, while real estate owned rose to 1.43 percent from 1.12 percent, the report said. The two main drivers of the worsening performance were a slowdown in home price appreciation and the poor performance of the 2006 vintage, Moody’s Investor Services indicated. The subprime component of the index, which makes up more than 80 percent of the index, reflected greater risk layering. “For 2006 vintage itself, aggressive lending practices adopted by some subprime lenders also contributed to this performance deterioration,” the ratings agency said. In addition, an “increasing number of subprime borrowers opted for longer tenor loans and interest-only loans in 2005 and 2006, sometimes with only stated income and asset information and/or with almost no equity down.” As a result, these borrowers are struggling to find refinance options, according to the report. Only one high LTV pool was added during the fourth quarter, Moody’s said. This category includes primarily second lien borrowers with moderately good credit who use proceeds for cash-out, debt-consolidation or conventional home improvement. The 60+ day delinquency rate rose to 3.86 percent from 3.12 percent in the third quarter. “Given a decreasing number of pools in the subindex, a change in performance of just a few pools can have a relatively large impact on the subindex,” the agency indicated. The traditional home equity subindex, which represents prime quality closed-end loans and home equity lines-of-credit, saw delinquency of 60 days or greater increase to 2.54 percent from 1.63 percent in the third quarter. Moody’s noted new home equity pools originated in 2006 were $499 billion, up from $471 in 2005. Subprime accounted for 85 percent of the activity, while traditional home equity loans accounted for 12 percent. High LTV pools represented less than 1 percent. |
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