An interesting bit of news crossing Business Wire late last week from Fitch on subprime mortgages:

Home prices were virtually unchanged for 2006 subprime mortgages even as subprime defaults rose to double digit levels, according to Fitch Ratings in a new report. In recent years, double-digit home price inflation has helped keep subprime defaults to very low levels. Fitch analyzed the default rates, defined as the sum of 90 day+ delinquency, foreclosure, REO and bankruptcy rates, of loans originated in 2002 through 2006 and the cumulative HPI rate following origination. Fitch conducted its analysis at the Metropolitan Statistical Area (MSA) level, rather than using state or national numbers. By weighting the home prices based on the amount of subprime loans in each MSA, Fitch was able to create a more accurate picture of home price inflation levels in the areas where subprime mortgages are concentrated. The analysis showed that subprime loans originated in the first quarter-2006 (1Q’06) have experienced only 0.5% of home price inflation after 12 months, but that defaults have jumped to 8.3% of outstanding mortgage balances. “This contrasts starkly to 2005 full-year originations which experienced average HPI of 17% after 12 months and very low defaults of 1.7%,” said Managing Director Glenn Costello.

I’m not sure that any of this would surprise those of us with mortgage banking experience — less appreciation equals less ability to refi out of trouble, meaning more foreclosures, especially for subprime borrowers who were already on the credit margin. Truth be told, I’m not really sure why this would be considered news, least of all why Fitch Ratings would have commissioned a study to find out what bond investors already knew and what, hopefully, Fitch analysts also knew when rating subprime deals. To read the full report, be sure to visit http://fitchratings.com (you’ll need a login).