The residential mortgage-backed securities (RMBS) market is showing signs of stabilizing.

That assessment appears in an RMBS market mid-year report posted by the Valuation of Securities Task Force at the National Association of Insurance Commissioners, Kansas City, Mo.

The NAIC’s Securities Valuation Office and consultants at an outside firm have been conducting their own reviews of the RMBS market, in an effort to supplement rating agency data.

Moderately weak Alt-A borrowers and weak subprime borrowers have done worse overall than the strong “prime” borrowers, but “current performance is improving due to departure (through default) from the pools of the worst borrowers and the relative improvement of the pools,” according to the authors of the RMBS presentation.

In addition, government programs have helped some of the Alt-A and subprime borrowers get back on their feet.

The prime borrowers are now the borrowers who worry RMBS market watchers.

Although the absolute performance of the prime borrowers is better, “high unemployment is taking a toll,” according to the authors of the RMBS presentation. “These borrowers will show more stress if unemployment remains stubbornly high.”

-ab