NEW DELHI & SINGAPORE--(BUSINESS WIRE)--Fitch Ratings has taken various rating actions on 949 classes in 145 Scratch and Dent RMBS transactions. The transactions reviewed are generally composed of residential mortgage loans that were originated with exceptions to the originator's underwriting guidelines or had experienced payment problems prior to issuance. The reviewed transactions were issued between 1996 and 2008.
A spreadsheet detailing Fitch's rating actions on the affected transactions can be found using the web link for 'U.S Scratch and Dent RMBS Rating Actions for March 11, 2014'.
Summary of the rating actions:
--803 classes affirmed;
--137 classes upgraded;
--9 classes downgraded.
Key Rating Drivers:
Three classes rated 'AAAsf' were downgraded due to a low remaining loan count and increased tail risk towards the end of their life. All of the other downgraded classes held a non-investment grade or distressed rating prior to the review. All of the downgrades were one rating category.
The classes upgraded to 'BBBsf' or higher generally benefit from significant credit support and a sequential payment priority. On average, the classes are projected to pay off in 40 months and have 57% credit enhancement. All of the positive rating revisions were one or two rating categories.
Collateral performance improved modestly over the past year with serious delinquency improving on average from 31% to 30% and realized losses to date increasing on average from 12% to 13% as a percentage of the original pool balance. A high percentage of the remaining loans have been modified. For mortgage pools with modification data available, close to 40% of the remaining loans have been modified.
Rating Sensitivities:
When projecting default and loss severity, Fitch relies on its non-prime loan-level loss model. For transactions without loan-level data available, Fitch assumed default and loss severity assumptions consistent with subprime vintage averages as determined by the loss model, adjusted for pool-specific product composition and performance.
Fitch analyzes each bond in a number of different scenarios to determine the likelihood of full principal recovery and timely interest. The scenario analysis incorporates various combinations of the following stressed assumptions: mortgage loss, loss timing, interest rates, prepayments, servicer advancing, and loan modifications.
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.
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.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. RMBS Surveillance Criteria' (Oct. 10, 2013);
--'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 Scratch and Dent RMBS Rating Actions for March 11, 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740475
Structured Finance Recovery Estimates for Distressed Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656557
Counterparty Criteria for Structured Finance and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709840
Criteria for Interest Rate Stresses in Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535
U.S. RMBS Cash Flow Analysis Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705655
U.S. RMBS Loan Loss Model Criteria -- Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727095
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661
U.S. RMBS Surveillance Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720170
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=823341
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