Fitch Solutions subprime credit default swap prices highest since October 2008
Prices of subprime credit default swaps continue to rise and are now at the highest level since October 2008, according to Fitch Solutions. Analysts said the firm's index for subprime swaps rose 5.2% in January on top of increases the prior two months, including a 7.2% gain in December. Fitch said the 2004 and 2007 vintages performed well last month with returns of more than 7% although constant default rates average 20% higher for the swaps from 2007. Fitch said increased severities from further declines in home prices and the large inventory of foreclosed homes continue to pose the largest risk to subprime index prices. "Declining default rates, delinquency rates, and prepayment rates with increasing market risk appetite are delivering a powerful boost to subprime asset prices," Fitch Director David Austerweil said. "The recent sharp rise in mortgage rates has been accompanied by a significant decline in constant prepayment rates." Last week, the average interest rate for a 30-year, fixed mortgage slid back to 5% after rising 20 basis points to 5.05% the week before, according to Freddie Mac. Rates continue to move away from the generational lows of 2010. Fitch said delinquency rates are declining once again with large drops in 60-day default rates across vintages, including 2007, which now has a 60-day delinquency rate about 30% lower than a year ago, according to Senior Director Alexander Reyngold. "If recent delinquency trends indicate that most troubled borrowers are already in foreclosure or have had successful loan modifications, delinquency rates should continue to decline," Reyngold said. Write to Jason Philyaw.