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Fitch Reports Recovery in Subprime Credit-Default Swap Prices

After losses last month, Fitch Solutions reports a recovery among subprime credit-default swaps (CDS) in July. Subprime CDS prices increased 1 percent overall for the month.


The largest increases in prices were among 2006 and 2007 vintages, which rose 6.1 percent and 10 percent, respectively.

This is a significant increase for the 2006 vintage, which has risen a collective 5.2 percent year-over-year, significantly less than the 39 percent increase for the overall index.

""The increase for 2006 prices is particularly notable because this vintage has significantly underperformed its peers over the past year,"" said Fitch's senior director Alexander Reyngold.


""That being the case, the 2006 price increase still pales noticeably when put up against the movement of the index overall,"" Reyngold said.

Fitch reported July loan performance was mixed.

The rate of 90-day plus delinquencies reached a new low for the year-declining 1.4 percent to 10.8 percent for the month.

The constant default rate increased by 13.5 percent for the month.

Both 60-day and 30-day plus delinquencies increased for the month of June, which Fitch interprets as a warning that constant default rates may increase further.

""Balance modifications may be playing a role in keeping 90-day plus delinquency rates low,"" said Fitch director David Austerweil.

""The percentage of subprime loans with balance modifications has increased by 120 percent over the last year to reach a high of 5 percent,"" Austerweil said.

Vintages with higher prices outperformed those with lower prices.

Fitch predicts voluntary prepayment rates on subprime CDS prices will become increasingly important.

The voluntary prepayment rate has been elevated since May, but ""the recent sharp rally in mortgage rates could lead to further increases,"" Fitch stated in a press release.

Last month the rate for the 2004 vintage increased 36.7 percent. The rate is now 4 percent.

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.

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