A Moody’s report has shown that rates of serious delinquencies and net charge-offs on home equity loans kept falling in 2004. This contrasts with the report from Fitch ratings agency that projects a downward trend in the market for collateralised debt obligations sector for the coming year, as a great proportion of these obligation is linked to the mortgage market.

Moody’s research that is focused on the past rather than future trends shows that Moody’s Home Equity Index assessing the aggregate performance of home equity loans packaged into securities evaluated by Moody’s was down to 5.57% in the fourth quarter of 2004 from 5.72% in the third quarter of the same year. The charge-off rate was under 1% for the quarter.

Fitch has a cautious outlook for the rest of the year, based on combination of rising interest rates against a steep increase in housing prices.

“With interest rates on the rise, the link [between mortgages and CDOs] could prove to have an adverse effect on CDOs should sub-prime retail mortgage backed securities performance decline,” Fitch said. “The increasing use of junior lien mortgages may add to that risk for leveraged sub-prime borrowers.”