Just about everyone agrees that the housing market cannot recover until deadbeat homeowners resume paying their mortgage obligations. Based on the latest residential mortgage-backed securities Performance Metrics report from Fitch, the debt rating agency, there is some evidence that this may be happening, albeit slowly, at least at the low end of the market.

According to Fitch, subprime RMBS delinquencies fell in May to 44.8% from 45.2% in April, a third straight month of decline. Still, they remain above the 40.7% rate of a year ago. These, of course, were the least creditworthy borrowers, now virtually banished from the credit and home ownership markets.

Meantime, Alt-A RMBS delinquencies decreased to 33.9% in May from 34.1% in April, but remain up from 28.3% in May 2009. It was only the second month-over-month decline since April 2006.

However, subprime roll rates (delinquencies that are being pushed furtherout) in May rose to 4.3% from 3.9% the prior month and but remained well below the trailing 12-month average of 5.4%. Likewise, Alt-A roll rates rose to 3.1% in May after falling sharply in April to 2.6%. Roll rates had not been below 3% since June 2008.

Fitch also cautioned that approximately 9% of performing Alt-A loans and 37% of performing subprime loans have been modified and have a substantial risk of re-default.

"A sustainable decline in delinquencies is difficult to achieve without an accompanying decline in roll rates," said Vincent Barberio, a managing director at Fitch. "The short-term beneficial effect of tax refunds may have run its course."

At the higher end of the market, prime jumbo RMBS 60+ day delinquencies rose to 10.3% in May from 10.2% in April and 5.9% a year ago. After nearly tripling in 2009, delinquencies are up another 1.1% since the beginning of the year. May roll rates rose above 1% after dipping below that level in the prior month but remained below their highest-ever level (1.4%) in March.

The five states with the highest volume of prime RMBS loans outstanding (California, New York, Florida, Virginia, and New Jersey) combined represent approximately two-thirds of the total sector. Prime jumbo RMBS 60+ day delinquencies for these states at April 2010 compared to the prior month, and their approximate share of the estimated $358 billion market, were: California: 12%; up from 11.9% (44% share of the market); New York: 7%; up from 6.8% (7% share); Florida: 18%; up from 17.8% (6% share); Virginia: 5.6%; the same as the prior month (5% share); New Jersey: 8.5%; up from 8.4% (3% share).