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One in six sub-prime portfolios 30% in arrears

More than 30 per cent of loans within a sixth of sub-prime securitised mortgage portfolios are in arrears.

According to Moody’s, overall mortgage arrears within sub-prime Residential Mortgage Backed Securities have risen over Q2 2009.

It says 54 of the UK sub-prime RMBS have more than 20 per cent of their book in arrears of more than 90 days, while 22 securities posted 90 days delinquencies higher than 30 per cent of their overall portfolio.

Moody’s senior associate Georgij Ludmirskij says: “With only a few exceptions, deterioration can be observed for all UK vintages and transaction series.”

Ludmirskij says six deals within Lehman Brothers’ Alba and Eurosail securities, Kensington’s Newgate series and GMAC-RFC’s RMAC range have fully depleted their reserve funds to cover realised losses in Q2 2009. As a result, Moody’s says it is likely that the junior notes in these deals may suffer principal losses unless performance improves.

However, the outstanding repossessions in the UK sub-prime market have decreased in Q2 2009 as lenders are forced to be more lenient in repossession cases.

Moody’s Economist Nitesh Shah says measures by the Tripartite to aid arrears and repossessions will take time to filter down to the performance of the securities. She says: “Moody’s also expects further performance deterioration in the near future for sub-prime RMBS.”

In Q2 2009 Moody’s placed on review for possible downgrade 133 classes of notes in 13 UK sub-prime transactions. Moody’s says there have been 117 UK sub-prime RMBS transactions issued since 2001. It says 88 transactions worth £27.3bn are currently outstanding in the market.

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