UK Non-Conforming RMBS Performance Worsens: Moody’s

Performance of non-conforming residential mortgage-backed securities (RMBS) in the United Kingdom continues to deteriorate in Q209, mirroring the weak performance of US RMBS as the global financial crisis pulls down employment and house prices. The rate of 90-day delinquencies among UK non-conforming RMBS essentially doubled to 19.9% of the current balance in Q209 from 10.1% in Q208, according to market analysis released Wednesday by Moody’s Investors Service. At the same time, unemployment slipped to 7.8% from 5.4% and year-on-year house price deflation rose to 15% from 1.2%. Moody’s noted UK house prices sit below an October 2007 peak by 14.6% according to Nationwide and 12.6% according to the Department of Communities and Local Government. Monthly UK price data shows a more positive outlook, along with UK mortgage lending. Prices in the UK continue to show steep declines from their peaks, Moody’s said, although not to the degree US house prices slipped since the height of the housing bubble — more than 30% in some cases. The falling house prices in the US plunged some seasoned RMBS pools past 125% loan-to-value, creating obstacles to ratings analysis. Moody’s faces similar ratings complications as non-conforming RMBS performance deteriorates, landing 133 classes of notes in 13 transactions on review for possible downgrade. “While the effects of government’s and Bank of England’s actions gradually filter throughto borrowers, further performance deterioration should be expected in the near future,” Moody’s said. “Interest rates have reached historical lows thus easing the pressure on the borrowers. House prices have increased in the four months from March to July and the amount ofloans in repossession has decreased.” But low interest rates and an accompanying lift in affordability drives a swell in demand for UK housing, which is experiencing pressured supply. Meanwhile, rising arrears in existing loans will continue to pressure European RMBS and trigger deferred interest payments. Write to Diana Golobay.