Wednesday, March 28, 2007

2006 Subprime Bonds May be Worst Performing Ever

From Bloomberg:

Subprime mortgage-backed securities from 2006 may be the ``worst-performing in recent history,'' with delinquencies on the underlying debt ``consistently higher'' than in the prior five years, Standard & Poor's said,.

About 13 percent of mortgages made last year to people who have poor or bad credit are delinquent, S&P analysts Michael Stock and Scott Mason said in a report yesterday, with 6.65 percent of the total classified as ``seriously delinquent,'' or more than 90 days late. Losses on bonds backed by the loans will be between 5.25 percent and 7.75 percent, compared with 5.5 percent in 2000, S&P forecasted.

About $540 billion of bonds backed by subprime mortgages made in 2006 are outstanding, making up more than a third of all securities derived from such home loans, according to New York- based Bear Stearns Cos.

This article makes it appear there is a big divergence in performance between 2006 bonds and all other subprime bonds. If that is the case, than we have an isolated year where we have large problems. That doesn't make it any easier to deal with, but it does at lease limit the damage.