ABX August Remittance Reports Are Still Down

The August remittance reports showed delinquency and loss data on the underlying bonds continued to deteriorate across the board. A telling statistic is that UBS analysts loss projections were for 06-1, 06-2 and 07-1 to increase by 18 basis points, 26 basis points and 74 basis points, respectively. Analysts noted that 07-2 has not seasoned enough to use the firm’s model projections since that approach is based on the delinquency pipeline. According to UBS analysts, this dismal performance is not surprising, explaining that the housing market is still under pressure and the options for subprime borrows to refinance are still shrinking. They added that the virtual shutdown of the subprime and Alt-A sectors happened after many of the borrowers that refinanced last month had already closed on their loans. This would mean that the delinquency and speed data will still deteriorate in the months ahead. The firm’s projected loss data is based the historical performance of the subprime market. Since that market no longer exists, the firm’s estimates will come in on the low side unless a major bailout occurs, which analysts do not expect to happen. “We suspect the contraction underway in the housing market and the subprime mortgage market will continue to reinforce each other for months to come,” analysts said. “This points to continued deterioration in the remittance data for the foreseeable future.”