NEW YORK--()--Link to Fitch Ratings' Report: U.S. RMBS Rating Actions for Dec. 5, 2012
Fitch Ratings has resolved the Rating Watch status of various classes in the Prime, Alt-A, subprime and Re-REMIC RMBS sectors.
The classes previously on Rating Watch Negative generally reflected increasing tail-risk in seasoned Prime RMBS and rating sensitivity to Fitch's updated loan loss model and surveillance criteria released on Aug. 10, 2012.
A list of the classes can be found at 'www.fitchratings.com' by performing a title search for 'U.S. RMBS Rating Actions for Dec. 5, 2012.'
Summary of Actions for Classes On Watch Negative:
--89% of classes downgraded and 11% affirmed;
--99% of downgrades are 1 - 2 rating category revisions;
--75% of downgrades are in the Prime sector or in the Alt-A sector issued prior to 2005.
The deterioration in performance in pre-2005 RMBS has been driven by adverse selection in the small remaining mortgage pools. Record-low mortgage rates initially driven by the Federal Reserve and sustained by economic uncertainty have led most pre-2005 borrowers to refinance. Consequently, the remaining mortgage pools are increasingly concentrated with borrowers unable to refinance due to credit obstacles.
Recent performance deterioration is compounded by structural features in pre-2005 transactions. The dollar amount of senior class credit protection will continue to decline in most transactions due to: the lack of hard subordination floors; structures that pay scheduled principal pro rata to subordinate classes; and the lack of performance triggers that redirect unscheduled principal cash flows from subordinates to senior classes. Since 2010, the dollar amount of senior class credit protection has declined by 33%.
The credit trends in seasoned Prime transactions are covered in more detail in the special report 'U.S. Prime Pre-2005 RMBS: Not What It Used to Be' (Sep. 6, 2012).
The rating revisions also reflect enhancements to Fitch's rating methodology. Key revisions include: (1) enhancements to the logic predicting servicer advancing and liquidation timelines to better reflect recent market trends; (2) improved consistency of methodologies across the Prime, Alt-A and Subprime sectors and (3) a refinement to the home price model to allow for more granular regional projections.
As part of the review of classes on Rating Watch Negative, Fitch also reviewed all rated classes in the Prime, Alt-A, subprime and Re-REMIC sectors. Of the roughly 30,000 RMBS classes reviewed that were not previously on Rating Watch Negative, Fitch affirmed 93% and downgraded 7%. Of classes downgraded not previously on Rating Watch, over 80% were on Outlook Negative and close to 90% were either one rating category revisions or classes with non-investment grade ratings prior to the review.
RMBS issued since the end of 2009 have generally performed well and, in many cases, are reflecting rating upgrade pressure. Of the approximately 350 Re-REMIC and new-issue RMBS classes issued since the end of 2009, Fitch affirmed 97%, placed 2% on Rating Watch Negative and downgraded 1%. The negative actions affected two Re-REMICs issued in 2010. Of those classes affirmed, close to 50% are on Rating Outlook Positive.
These actions were reviewed by a committee of Fitch analysts.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria & Related Research:
--'U.S. Prime Pre-2005 RMBS: Not What It Used to Be' (Sep. 6, 2012);
--'U.S. RMBS Loan Loss Model Criteria' (Aug. 10, 2012);
--'U.S. RMBS Surveillance Criteria' (Aug. 10, 2012);
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 18, 2011);
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (March 20, 2012);
--'Criteria for Rating Caps in Global Structured Finance Transactions' (Aug. 2, 2012).
Applicable Criteria and Related Research:
U.S. Prime Pre-2005 RMBS: Not What It Used to Be (Adverse Selection Increasing Negative Rating Pressure)
U.S. RMBS Loan Loss Model Criteria
U.S. RMBS Surveillance Criteria
Global Structured Finance Rating Criteria
Structured Finance Recovery Estimates for Distressed Securities
Counterparty Criteria for Structured Finance Transactions
Criteria for Interest Rate Stresses in Structured Finance Transactions
Criteria for Rating Caps in Global Structured Finance Transactions