Market conditions during the first three months of this year had a positive impact on the value of private-label residential mortgage-backed securities.
Rising home prices and relatively low interest rates helped improve the outlook for the riskiest tranches of RMBS in the first quarter. Even some of the worst vintages benefited from first-quarter conditions.
RMBS transactions with the biggest share of delinquent and negative-equity loans are now more like to perform than default as home prices increase.
The findings were outlined in CoreLogic Bond Tracker Quarterly.
More than 30,000 bonds backed by seasoned non-agency Alt-A, subprime, pay-option adjustable-rate mortgages, and jumbo prime loans are monitored for the report.
This represents “a significant savings” for RMBS investors, according to CoreLogic.
Deals that liquidate could face smaller losses given higher recoveries.
Lifetime losses on subprime RMBS have been cut by 823 basis points because of improving conditions.
On option-ARM securities, lifetime losses are now 552 BPS lower.
For issuances from 2006 through 2008, average losses have fallen at least 400 BPS.
“Bonds at the lower end of the credit spectrum showed the most improvement: 5 percent more of the bonds entered the C category, most moving up from the D category,” the report said. “Other categories were relatively stable with prepayments and downgrades reducing the outstanding balance of AAA bonds by only 2 percent.”
However, CoreLogic Senior Vice President Real Estate and Financial Services Ben Graboske cautioned that while home prices have continued strengthening in the second quarter, rising interest rates could cut into future benefits for ARM-backed bonds.
The full CoreLogic report is located online at www.corelogic.com/research/corelogic-bond-tracker-quarterly/corelogic-bond-tracker-quarterly-vol-2-no-2.pdf.
