NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken various rating actions on 10,033 classes in 658 U.S. Alt-A residential mortgage backed security (RMBS) transactions.
Rating Action Summary
--9,752 classes (97%) affirmed;
--91 classes (1%) upgraded;
--190 classes (2%) downgraded.
In addition, all classes with a rating of 'Dsf', a balance of 0, and a projected recovery estimate of 0 had their ratings affirmed at 'Dsf' and subsequently withdrawn.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 Apr. 16, 2014' or by clicking on 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
Collateral performance has remained stable to slightly positive since the last review. Over the past six months, serious delinquency has improved roughly 1% across vintages. Performance continues to benefit from rising home prices. Prepayment rates have fallen since the last review driven by higher interest rates and a smaller population of borrowers able to refinance.
The slight improvement in collateral did not have a material effect on Fitch's loss assumptions. On average, projected losses fell by 1% across all rating stresses from the prior review. Slight declines in both the probability of default and loss severity assumptions led to the drop in projected losses.
Despite the improving collateral and decreased loss assumptions, rating upgrades were limited, making up only 1% of all rating actions. Nearly 80% of all upgrades were one rating category. No class was upgraded more than two categories. Additional upgrades to investment grade were constrained due to extended projected months to pay off and the increased tail risk associated with it.
The limited number of rating downgrades was concentrated in classes that previously held distressed ratings. Out of the 190 classes that were downgraded, 176 were previously rated 'CCCsf' or below. Of the small number of investment grade classes downgraded, all but one was one category. The only two-category investment grade downgrade was due to interest shortfall risk.
RATING SENSITIVITIES:
A detailed list of Fitch's updated probability of default, loss severity, and expected loss can be found by performing a title search for 'RMBS Loss Metrics' at www.fitchratings.com. The report provides a summary of base-case and stressed scenario projections.
Fitch's 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 to occur. 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.
In addition to increasing mortgage pool losses at each rating category to reflect increasingly stressful economic scenarios, 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.
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 to decline further in some regions 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 Apr. 16, 2014' 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. 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. RMBS Rating Actions for Apr. 16, 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746901
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 and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725537
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=827133
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