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Prime Mortgage Performance Deteriorating at Alarming Rate

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While the performance of US structured finance transactions backed by prime residential mortgages has declined significantly since issuance, much like other collateral types, the rate of performance deterioration over the last 12 months is "alarming," credit-rating agency DBRS said in market commentary Tuesday. According to the rating agency, the rate of serious delinquencies of 60 or more days - including bankruptcy, foreclosure and real estate owned proceedings - for 2005-2008 vintages rose 47% from a year ago, based on the total outstanding balance of each vintage. Delinquencies among the '08 vintage have nearly tripled since December 2008, DBRS found, while '07 delinquencies rose 66%, '06 increased 59% and '05 delinquencies grew 13%: These figures compare with relatively slower increases in delinquency rates among subprime-backed transactions. In the same 12-month time frame, US structured finance transactions backed by subprime mortgages experienced a 12% increase in serious delinquencies, DBRS said, compared with the prime sector's 47% increase. Additionally, delinquencies appear to have peaked for subprime vintages, which show recent signs of stabilizing: "Despite the fact that prime mortgages still display the lowest overall defaults and expected losses, the rate of increase in prime delinquencies is, in fact, the most pronounced," DBRS said in an e-mailed statement. Write to Diana Golobay.

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