Default rates among Portuguese residential mortgage-backed securities (RMBS) increased to 1% in Q209, from 0.5% just one year earlier. The weighted-average 60-plus-day delinquency rate was up to 2.1%, from 1.9% in Q109, according to an index report by Moody’s Investors Service. At the same time, prepayment rates declined to 4.6%. Moody’s, however, expects the Portuguese RMBS sector to improve. “House prices increased by 1.7% compared to Q109, although they are still 1.5% lower than a year ago,” Nitesh Shah, a Moody’s Economist said in a statement. “However,” Shah added, “it is debatable whether we have hit a sustainable turning point, and house price growth is likely to remain weak given the recessionary backdrop and rising unemployment,” which is expected to continue to increase from 8.8% to 9.8% by 2010. In its report, Moody’s noted three transactions had reserve fund draws during Q209. The ratings agency will watch outstanding Portuguese RMBS transactions for potential ratings action if they show signs of declining collateral performance. Write to Austin Kilgore.

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