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Fixed Rate Defaults Jump

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Fixed Rate Defaults Jump

FBR default report

February 26, 2007

By PATRICK CROWLEY

photo of Patrick Crowley
Rising defaults on subprime mortgages aren’t limited to adjustable-rate loans and are weighing on new issue spreads, according to a new investment banking report.Defaults on adjustable-rate subprime securities continue to trend at a “whopping” pace compared to recent years, according to the report from Friedman Billings Ramsey & Co.

The default rate of the 2006 originations “rose briskly” to 4.62% in January, a 21.3% increase over the previous month, the report indicated.

But the real bump comes in comparing the 2006 default rate to 2005 and 2004.

Last year’s rate was 51.6% over 2005 originations and “a whopping 137%” over 2004, according to the report.

“In relation to previous origination years the default rates of 2005 and 2006 origination years deteriorated considerably faster than the 2002-2004 origination years,” the investment banker said.

“The default rate of the 2006 origination year is significantly higher (by 61.1%) than the weighted-average default rate of all adjustable-rate securities originated during 2000-2006 at the same of 12 months.”

And defaults of fixed-rates are also rising with 2006 originations growing by 8.1% to 2.81% in January while 2005 defaults grew by 5.7% to 6.11% from the prior month.

“Similar to its adjustable-rate counterpart, the 2006 origination year of fixed-rate (originations) also experienced weaker credit performance than earlier origination years at the same age,” the firm reported.

In a report issued earlier this month, FBR, which is based in Arlington, Va., reported that default rates have risen to their highest levels in six years.

And Credit Suisse has reported that 25 percent of subprime mortgage deals issued last year have hit a delinquency rate of at least 8 percent at the end of 2006.

The problems with the subprime market are also impacting new issues, FBR said in the latest report.

“The deteriorating credit performance of the subprime mortgage market has begun to weight heavily on new issue spreads,” the company said.


Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: PatCrowley@MortgageDaily.com

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