In Q4 2008, it found that total delinquency index for UK subprime Residential Mortgage Backed Securities increased to record levels, thanks to affordability issues coupled with an inability of borrowers to refinance.
S&P says its believes that many 2005 and 2006 vintage fixed-rate borrowers suffered from payment shock of reverting into a higher interest rate environment causing many to fall into arrears. The likelihood of further rises in unemployment could cause further deterioration in the performance of these books, it says.
It found that total delinquencies on nonconforming RMBS increased to a record level of 28.61 per cent, from 25.05 per cent in Q3. Ninety-day plus delinquencies are now 12.46 per cent, up from 10.31 per cent.
It also found that stock of repossession cases stands at 3.5 per cent on these books, up from 2.8 per cent in last quarter, and 1.6 per cent a year ago.
As a result of the downturn, S&P has lowered its ratings on tranches in 31 UK nonconforming RMBS transactions since November 2008. The ratings on tranches in 44 transactions remain on negative watch. Only one tranche was on positive watch.
S&P says: “Consequently, we have seen more negative rating actions in the UK nonconforming RMBS sector than ever before. For example, 10 per cent of ratings outstanding at the beginning of 2008 ended the year at a lower rating. Only 2.5 per cent ended the year at a higher rating.”