RMBS Performance is Beginning to Turn the Corner: Fitch

Delinquency rates for some residential mortgage-backed securities (RMBS) are beginning to improve.

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According to the latest performance metrics results from New York-based ""Fitch Ratings"":http://www.fitchratings.com/index_fitchratings.cfm, April marked the first month in four years that serious delinquencies for U.S. Alt-A RMBS have declined. In addition, subprime late-pays fell for the second straight month, while prime RMBS delinquencies increased just slightly.

""Last month's improvements may be a signal that RMBS performance is beginning to turn the corner,"" said Vincent Barberio, managing director at Fitch. ""The next few months will be a better indicator of whether we're witnessing the beginnings of a legitimate turnaround or a short-term seasonal effect of tax-refunds.""

Fitch said higher cure rates, an increased volume of loan modifications, and improvement in both liquidation and roll rates all contributed to the turnaround in both subprime and Alt-A delinquencies. Despite this improved performance, the tracking company cautioned that approximately 8 percent of current Alt-A loans and 35 percent of current subprime loans are modified and have a substantial risk of default.

Alt-A RMBS delinquencies nudged down to 34.1 percent in April from 34.4 percent in March, representing the first month-to-month decline since April 2006. However, on a year-over-year basis, delinquencies were still up from 27.4 percent in April 2009. Fitch said roll rates also improved, falling to 2.6 percent from 3.9 percent last month.

According to Fitch, California and Florida hold more than 50 percent of the volume of Alt-A RMBS loans outstanding. While the delinquencies for these loans in Florida remained unchanged at 51.7 percent in April, delinquencies in California fell to 35.8 percent from 36.3 percent the month prior.

Marking the second straight month of declines, subprime RMBS delinquencies fell again in April to 45.2 percent from 46.3 percent in March. Still, though, delinquencies were above the 40.1 percent rate of a year ago. In addition, Fitch said the roll rate for April fell to 3.9 percent from 4.5 percent the month prior and was well below the trailing 12-month average of 5.5 percent.

Prime jumbo RMBS 60-plus day delinquencies nudged up to 10.2 percent in April from 10.1 percent in March and were notably higher than 5.4 percent during the same month last year. After nearly tripling in 2009, delinquencies are already up another 98 basis points since the beginning of the year, Fitch said. However, April roll rates fell below 1 percent after rising in the prior month to 1.4 percent--their highest-ever level in Performance Metrics history.

The five states with the highest volume of prime RMBS loans outstanding--California, New York, Florida, Virginia, and New Jersey--combined represent approximately two-thirds of the total sector, Fitch said. Prime jumbo RMBS 60-plus day delinquencies for these states in April compared to the previous month and their approximate share of the estimated $364 billion market varied from state to state.

Representing 44 percent of the market share, delinquencies in California increased to 11.9 percent in April from 11.8 percent in March. Late pays in New York remained unchanged from March at 6.7 percent and accounted for a 7 percent share. Florida had a 6 percent share of the market, as delinquencies increased to 17.8 percent from 17.5 percent, and Virginia had a 5 percent share as late pays fell to 5.6 percent from 5.8 percent. In addition, delinquencies in New Jersey inched up to 8.4 percent to 8.2 percent, accounting for a 3 percent share of the market.