Mortgage Payment Shocks May Rise in Coming Months
CreditSights believes the mortgage crisis is probably not over and that payment shocks may re-emerge in coming months.
In a mid year review of subprime and Alt-A RMBS pool performance, CreditSights details the following factors:
- Delinquencies in both subprime and Alt-A RMBS continue to rise steeply, but the rate of growth does appear to be slowing.
- We suspect that the slowdown may simply be a result of seasonal factors rather than a fundamental improvement in mortgages.
- Subprime foreclosures are also slowing, but this is probably a result of servicers providing modifications in greater numbers.
There remains significant risk that mortgage-specific payment shocks, while quiet over the past nine months, will re-emerge over the next 18 months. Further, negative equity continues to grow.
- It is possible that both of these risks can be somewhat resolved by offering greater numbers of modifications which seek to reduce the costs of the mortgage to borrowers.
- However, while modifications should reduce delinquency and foreclosure rates, it is not guaranteed that they will increase the value of RMBS tranches, certainly for senior noteholders.
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