NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken various rating actions on 172 U.S. RMBS transactions. The transactions reviewed consisted of 124 Manufactured Housing (MH), 30 Small Balance Commercial (SBC), and 18 securities sponsored by BV Legacy L.P., fka Bayview Financial, L.P. (Bayview).
Fitch reviewed 789 classes; 736 classes were affirmed, 43 were upgraded, 8 classes were downgraded, and 2 classes were withdrawn.
A spreadsheet detailing the actions can be found on Fitch's website by performing a title search for 'U.S. RMBS Rating Actions for Aug. 15, 2013' or by clicking the link. In addition, a summary of the mortgage pool and bond analysis can be found by performing a title search for 'RMBS Loss Metrics.'
KEY RATING DRIVERS
Performance has generally remained stable for transactions in this review and has resulted in little change in Fitch's expected loss assumptions. A detailed list of Fitch's updated Probability of Default (PD), Loss Severity (LS), and Expected Loss (XL) can be found by performing a title search for 'RMBS Loss Metrics' at www.fitchratings.com.
All but one of the downgrades were limited to one rating category below their prior rating. One class, which held a non-investment grade rating prior to the review, was downgraded two rating categories due to interest shortfalls. The majority of the downgrades affected distressed classes previously rated below 'Bsf' which now appear more certain to default.
Upgrades were limited to one rating category above their prior rating due to historical cash flow volatility within the sectors reviewed. The upgrades were driven by stable-to-improving collateral performance and, in some cases, sequential-pay cashflow features which are expected to pay off the upgraded classes within a relatively short timeframe.
Fitch uses pool level collateral data to analyze the MH, SBC, and Bayview transactions. To determine the PD Fitch will use subprime or Alt-A vintage average assumptions while the LS will typically be determined by observed severities over the prior 12 months. Specific assumptions used in the analysis are described in more detailed below.
For MH transactions Fitch determines the PD using the subprime vintage average derived from Fitch's non-prime loss model and adjusted for pool specific performance. The LS assumption for each transaction is determined by each issuer's 12 month historical average. The cash flow analysis assumes Fitch's benchmark 10 year CDR curve, a 10% CPR, zero advancing on delinquent loans and a haircut to the WAC in the 'Asf-AAAsf' rating stresses.
The PD for SBC transactions is based on the Alt-A vintage average derived from Fitch's non-prime loss model. The LS is determined by each issuer's 12 month historical average and typically ranges from 65%-80% in the base case. Fitch's cashflow analysis assumes prepayment, loss-timing and servicer advancing behavior consistent with Alt-A sector vintage averages.
When it is not possible to run cash flow analysis on SBC transactions, Fitch will add one year of excess spread to the credit enhancement (CE) and then compare CE to the expected loss in each rating stress. In order for a class to be affirmed, its CE must exceed the expected loss in its current rating stress.
Fitch uses pool level collateral data to analyze the Bayview transactions. If the underlying collateral is small balance commercial/mixed assets the default assumptions are based off of the Alt-A vintage default assumptions from Fitch's non-prime loss model and are adjusted for pool specific product composition and performance. For the remaining asset types, Fitch uses the subprime vintage default assumptions from Fitch's non-prime loss model adjusted for pool specific product composition and performance.
Fitch assumes a 75% base case loss severity for the loans in the 12 BFAT transactions. For the Bayview Revolvers and BFAT resecuritizations an 80% severity is used if the collateral is small balance commercial, a 90% severity is used if the assets are first liens and a 100% severity is used for second liens.
The Bayview cash flow analysis assumes Fitch's benchmark CDR and CPR curves, zero servicer advance rate for all second liens while the advance rates for first liens reflected Alt-A or subprime advance rates, and a haircut to the WAC in the 'Asf-AAAsf' rating stresses.
Once Fitch determines the base case assumptions, the stressed assumptions are determined using Fitch's loss model PD and severity multiples. This in turn determines Fitch's expected losses in the 'Bsf-AAAsf' stresses.
In addition to increasing losses at each rating category to reflect increasingly stressful economic environments, Fitch analyzes various loss-timing, prepayment, loan modification, servicer advancing, and interest rate scenarios as part of the cash flow analysis. Each class is analyzed with 43 different combinations of loss, prepayment and interest rate projections.
The analysis includes rating stress scenarios from 'CCCsf' to 'AAAsf'. The 'CCCsf' scenario is intended to be the most-likely base-case scenario. Rating scenarios above 'CCCsf' are increasingly more stressful and less-likely outcomes. Although many variables are adjusted in the stress scenarios, the primary driver of the loss scenarios is the home price forecast assumption. In the 'Bsf' scenario, Fitch assumes home prices decline 10% below their long-term sustainable level. The home price decline assumption is increased by 5% at each higher rating category up to a 35% decline in the 'AAAsf' scenario.
Classes currently rated below 'Bsf' are at-risk to default at some point in the future. As default becomes more imminent, bonds currently rated 'CCCsf' and 'CCsf' will migrate towards 'Csf' and eventually 'Dsf'.
The ratings of bonds currently rated 'Bsf' or higher will be sensitive to future mortgage borrower behavior, which historically has been strongly correlated with home price movements. Despite recent positive trends, Fitch currently expects home prices nationally to decline further before reaching a sustainable level. While Fitch's ratings reflect this home price view, the ratings of outstanding classes may be subject to revision to the extent actual home price and mortgage performance trends differ from those currently projected by Fitch.
The spreadsheet 'U.S. RMBS Rating Actions for Aug. 15, 2013' provides the contact information for the performance analyst.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. RMBS Surveillance Criteria' (Oct. 11, 2012);
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'U.S. RMBS Loan Loss Model Criteria' (Aug. 9, 2013);
--'U.S. RMBS Cash Flow Analysis Criteria' (April 19, 2013);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (June 12, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);
--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 18, 2011).
Applicable Criteria and Related Research: U.S. RMBS Rating Actions for
Aug. 15, 2013
U.S. RMBS Surveillance Criteria
Global Structured Finance Rating Criteria
U.S. RMBS Loan Loss Model Criteria
U.S. RMBS Cash Flow Analysis Criteria
Criteria for Interest Rate Stresses in Structured Finance Transactions
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions
Counterparty Criteria for Structured Finance and Covered Bonds
Structured Finance Recovery Estimates for Distressed Securities