The group's latest quarterly report, published today, surveyed 25 European financial institutions and found that worst-case expectations for constant default rates had dropped from an average of 8% to 2.49% for prime RMBS and from 21% to 12.4% for non-conforming RMBS during the second quarter.
But 'base case' expectations were less optimistic, with default rates expected to climb from 4% to 9.13% for non-conforming RMBS and recovery lag rising from 14 months to 18 months for prime RMBS. Market participants also expect a 10% decline in UK house prices over the next 12 months.
"This survey continues to quantify the central problem for the structured finance market... namely the difficulty and disparity around the creation of input assumptions for the valuation of illiquid legacy asset-backed and mortgage-backed securities," said Peter Jones, global head of S&P's Valuation Scenario Services business. "Over the coming months we hope the increasing volume of data will help create useful benchmarks for the benefit of investors."