Moody’s Sees Mixed Performance in UK, European RMBS

Both prime and non-conforming UK residential mortgage-backed securities (RMBS) posted continued signs of stabilization in September, although overall European RMBS performance remains uneven.

UK prime residential mortgage-backed security (RMBS) performance continued to stabilize in September, according to indices compiled by Moody’s Investors Service.

The UK Prime RMBS repossession trend remained at 0.07% since August. The rate of 90+ day delinquencies also kept its August level, remaining at 1.9% — 0.7% above the year-ago level.

The cumulative UK Prime RMBS loss trend stood at 0.11%, only slightly higher than the August level, according to Moody’s. The ratings agency’s outlook for UK Prime RMBS is negative.

Delinquencies among UK non-conforming RMBS also remain stable since June, Moody’s said. The weighted-average delinquency trend was 20%, up from 11.6% one year earlier.

The non-conforming UK RMBS repossessions trend was 1.4% lower in September than its 3.5% peak in the beginning of 2009. The decline in outstanding repossessions was driven by the volume of sales of repossessed properties, which caused further losses, Moody’s said.

“”While it is good news that the rise in delinquencies has abated, the levels remain very high,” said senior associate Georgij Ludmirskij. “There are currently 20 transactions that account over 30% of their portfolios as 90+ days delinquent.”

In European RMBS, performance remains mixed among conservative and more bullish markets. For example Dutch RMBS remains stable, as the housing market in the Netherlands did not see as much of a pop in housing before the recession. At the same time, Spanish RMBS continues to struggle under the effects of the inventory of luxury properties in areas like Costa del Sol and Costa Brava, which buyers shunned as the recession worsened.

The Dutch RMBS market continued to show signs of stabilization in September. The 60+ day delinquency trend remained at 0.6%, where it’s held since March. The weighted average cumulative foreclosure rate increased at only a “very moderate rate,” rising to 0.48% in September from 0.45% at the same time last year.

The constant prepayment rate for Dutch RMBS continued to decrease, falling to 6.6%. The outstanding pool balance in the Dutch RMBS market stands at €184.3bn (US$273.74bn) as of September.

Industrial production and retail sales data indicate the Netherlands likely emerged from recession in Q309, Moody’s said. Exports are likely to lead economic recovery in 2010, the ratings agency said, although recovery will be modest as most of the Netherlands’ trading partners are recovering slowly.

Dutch unemployment, although relatively low for a European country, rose sharply to 6% from 3.8% in Q308. Moody’s anticipates the Dutch unemployment rate will continue to rise, topping 8% by Q310.

Dutch house prices stabilized in recent quarters after falling in the second half of 2008.

Moody’s outlook on Dutch RMBS remains negative over generally higher loan-to-value ratios that make Dutch loans more sensitive to changes in house prices.

At the same time, Spanish RMBS continued to deteriorate in performance during September. The cumulative default rate reached 1.31% — more than four times the level one year earlier. The 90+ day delinquency trend increased by 0.84% over the previous year and now stands at 2.02% in September.

The constant prepayment rate among Spanish RMBS has decreased since mid-2006 and now stands at 6.8%. The total outstanding pool balance in the Spanish RMBS market was €147.8bn.

Moody’s outlook for Spanish RMBS remains negative, as unemployment continues to hamper borrower performance.

The Spanish market recently saw an upturn in the number of property acquisitions as the securitized mortgage pools deteriorated rapidly and the real estate market remained illiquid, adding uncertainty to recovery and loss severity, according to Moody’s. The Spanish economy is not likely to begin growth again until Q110, Moody’s said, marking the 8th consecutive month of recession and one of the longest recessions in the Euro area.

Write to Diana Golobay.