Subprime loan performance stabilizes, caution urged

By Nancy Leinfuss

NEW YORK (Reuters) - The performance of subprime mortgage loans pooled into U.S asset-backed securities showed signs of stabilizing in April, although analysts signal caution ahead.

Remittance reports, which provide a snapshot of subprime loan performance over the last 30 days, showed the pace of delinquencies slowed from the sharp climb in previous months, snapping a long period of pronounced deterioration.

Poor underwriting standards on home loans made to borrowers with weak credit histories over recent years led to soaring delinquencies and defaults on the risky loans.

Remittance reports, issued monthly on the 25th, are closely watched because they allow market participants to track the credit performance of subprime mortgage loans supporting the ABX index. ABX, a synthetic index of home equity asset-backed securities tied to credit default swaps, is comprised of the risky home loans.

Delinquencies on mortgage loans of 60 days or more, which support the ABX 06-1, 06-2, 07-1 and 07-2 indexes, rose by 122, 191, 130 and 168 basis points, respectively in April, slowing the pace from March's increases of 160, 221, 140 and 204 basis points, analysts said.

Despite this month's improved report, analysts caution seasonal factors may have come into play.

"The deceleration is partly attributable to seasonality (tax refunds), but is nevertheless a fairly significant slowdown," said Chris Flanagan, analyst at JPMorgan Securities.

According to Barclays Capital, the number of bankruptcies, foreclosures, and real estate-owned properties posted increases across all index series in April, offsetting some of the improvement in delinquencies.