Delinquency Trends

Jumbo loans delinquent less than 60 days as of Dec. 31 rose for the first time during the past two years, according to data released by Moody’s Investors Service today.

The 30-to-59 day delinquency rate during the latest quarter was 0.62 percent — rising from 0.54 percent in the third quarter, according to the report.

Jumbo loans past due at least 60 days represented 0.33 percent of jumbo mortgages outstanding, Moody’s reported. Delinquency was 4.5 basis points higher than in the fourth quarter 2005.

The rise, however, “is still relatively benign when viewed in absolute terms,” the agency said.

“Net loss rates, while still very low as is customary for jumbo pools, may be seeing a bit of upward pressure from the rising delinquency rates over the past five quarters,” according to the announcement.

Moody’s reported that the 2006 ARM vintage has underperformed all other vintages since 2002 and is closely tracking the jumbo 2001 vintage –adding that 2006 borrowers were more leveraged.

However, originators have compensated for the higher leveraging “by lending to borrowers of higher credit quality; weighted average FICO scores in Jumbo pools increased from 2005 to 2006,” the report said. “Although delinquencies have risen by about 50% over the last five quarters and are likely to increase further, it is too early to conclude whether net losses will rise accordingly.”

The agency noted higher rates and slower appreciation on the jumbo pools is making it harder for troubled borrowers to refinance or sell.

Moody’s Home Equity Index Composite indicated 60-day home equity delinquency was 9.81 percent in the fourth quarter, jumping from 7.94 percent at the end of the prior quarter and 6.74 percent a year earlier.

The home equity index consists of subprime, high loan-to-value and traditional home equity subindexes, the report said. The subprime subindex comprises 80 percent of the total.

The year-over-year increase in home equity delinquency was the biggest since 1996, according to the report.

Meanwhile, home equity foreclosures and real estate owned soared to 3.94 percent from 1.53 percent a year earlier, the agency said.

Another analysis announced today by Standard & Poor’s Ratings Services indicates 2006 subprime vintage pools are performing very similarly to 2000 vintage pools during their first year.

“The number of total and serious delinquencies for the 2006 vintage is consistently higher than for deals issued between 2001 and 2005,” S&P credit analyst Michael Stock said in the statement. “However, the loans in the deals issued in early 2006 have nearly the same level of serious delinquencies after just 12 months of performance as those in the 2000 vintage, which had 6% in serious delinquencies after one year of performance.”

But the earlier vintage was done when rates were lower, appreciation was higher and prepayments were faster — all advantages over the latest vintage, S&P noted.

The current loss expectations for 2006 deals is between 5.25% and 7.75%, S&P said.

“Our loss assumption also considers the relatively weak housing market, and we assume that home price appreciation will be stagnant this year,” Stock said.

Poor recent performance of subprime loans will have little impact on collateralized debt obligations securitizing real estate investment trust-preferred securities, Moody’s said in another report.

“We have rated 11 CDOs in which the majority of the collateral includes REIT TRUPS and found that exposure to subprime mortgages is limited,” Moody’s Senior Analyst James Brennan said in an announcement.

But Moody’s noted REITs could be exposed to banks that specialize in subprime lending.