Rising Roll Rate Offsets Declining Non-Agency Loan Delinquencies

By: Jann Swanson •

Data released by Fitch Ratings on Monday show the same trend as other recent delinquency surveys:  the worst appears to be over for subprime and Alt-A loans while delinquencies in the jumbo prime mortgage sector are continuing to increase.

According to Fitch's Performance Metrics for May, delinquencies in Alt-A Residential Mortgage Backed Securities (RMBS) declined for the second straight month and subprime delinquencies fell for the third month in a row.  Prime RMBS backed delinquencies, however increased slightly.

Offsetting the good news, however, was a continued increase in roll rates, the number of loans moving from one delinquency bucket to a later bucket rather than curing and returning to "current" status.  According to Fitch Ratings Managing Director Vincent Barberio, "A sustainable decline in delinquencies is difficult to achieve without an accompanying decline in roll rates."  Barberio said that the good news was further tempered by indications that "the short-term beneficial effect of tax refunds may have run its course."

Alt-A RMBS delinquencies dropped to 33.9 percent in May from 34.1 percent in April but were still higher than the 28.3 percent rate recorded in May 2009.  Roll rates for Alt-A loans increased to 3.1 percent in May from 2.6 percent a month earlier.  The April rate had marked a sharp decline and the first time roll rate for Alt-A loans had dropped below 3 percent since June 2008.

Sub-prime delinquencies dropped from 45.2 percent in April to 44.8 percent in May but the roll rate rose month-over-month from 3.9 percent to 4.3 percent.  This was still well below the trailing 12-month average of 5.4 percent.  Subprime delinquencies one year ago were 40.7 percent.

Despite the improvement in delinquencies rates, Fitch cautions that approximately 9% of performing Alt-A loans and 37% of performing subprime loans are modified and carry a substantial risk of re-default.

Prime jumbo RMBS 60+ day delinquencies rose to 10.3% for May compared to 10.2% for April and 5.9% in May 2009. After nearly tripling in 2009, delinquencies are up another 1.1% since the beginning of the year. May roll rates rose above 1% after dipping below that level in the prior month but remained below their highest-ever level (1.4%) in Performance Metrics history, which was recorded in March. Fitch did not give percentages for delinquencies, past or present, for conforming prime loans.

California and Florida continue to drive the numbers, holding more than 50% of total of Alt-A RMBS loans outstanding. While Florida delinquencies remained unchanged at 51.7%, California delinquencies fell to 35.5% from 35.8% the prior month.

In California the prime jumbo loan performance weakened slightly in May, with 60+ days delinquencies rising to 12% from 11.9% in April (and 6.8% in May 2009). During the first five months of 2010, Florida had the biggest jump (2%) of the five states with the highest volume of jumbo loans outstanding. New Jersey was second of the five states with a 1.4% increase over the same period.

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 $358 billion sector.  Fitch gives the prime jumbo RMBS 60+ day delinquencies for these states as of April 2010 compared to the prior month, and their approximate share of the estimated $358 billion market, as follows:

  • California: 12%; up from 11.9% (44% share of the market)
  • New York: 7%; up from 6.8% (7% share)
  • Florida: 18%; up from 17.8% (6% share)
  • Virginia: 5.6%; the same as the prior month (5% share);
  • New Jersey: 8.5%; up from 8.4% (3% share).

Fitch's RMBS Performance Metrics are updated monthly and combine loan level data from Fitch Ratings and LoanPerformance to include delinquency trends, roll rate movement and loss rates across vintage, sector, and mortgage type.