NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate Citigroup Mortgage Loan Trust 2014-J1 (CMLTI 2014-J1) as follows:
--$197,222,000 class A-1 certificate 'AAAsf'; Outlook Stable;
--$197,222,000 class A-1-IO notional certificate 'AAAsf'; Outlook Stable;
--$6,921,000 class A-2 certificate 'AAAsf'; Outlook Stable;
--$6,921,000 class A-2-IO notional certificate 'AAAsf'; Outlook Stable;
--$197,222,000 class A-1W exchangeable certificate 'AAAsf'; Outlook Stable;
--$6,921,000 class A-2W exchangeable certificate 'AAAsf'; Outlook Stable;
--$204,143,000 class A exchangeable certificate 'AAAsf'; Outlook Stable;
--$204,143,000 class A-IO notional exchangeable certificate 'AAAsf'; Outlook Stable;
--$204,143,000 class AW exchangeable certificate 'AAAsf'; Outlook Stable;
--$2,943,000 class B-1 certificate 'AAsf'; Outlook Stable;
--$2,725,000 class B-2 certificate 'Asf'; Outlook Stable;
--$3,052,000 class B-3 certificate 'BBBsf'; Outlook Stable;
--$2,289,000 class B-4 certificate 'BBsf'; Outlook Stable.
The $2,833,825 class B-5 certificate will not be rated by Fitch.
KEY RATING DRIVERS
High-Quality Mortgage Pool: The collateral pool consists of very high quality 15- and 30-year fixed-rate, fully documented loans to borrowers with strong credit profiles, low leverage and substantial liquid reserves. Third-party, loan-level due diligence was conducted on 100% of the pool with no material findings, indicating strong underwriting controls.
Small Loan Count: The total loan count in this pool is 285 loans. RMBS pools with a small number of loans carry the risk that portfolio performance may be adversely impacted by a few assets that may underperform relative to the statistically derived assumptions underlying their ratings. To reduce potential ratings volatility arising from this risk later in the transaction's life, Fitch applied a penalty of approximately 1.09x to the pool's lifetime default expectations. The subordination floor also mitigates this risk.
Extraordinary Trust Expense Adjustment: For this transaction, the extraordinary trust expenses will be deducted from available funds as opposed to the pool's net weighted average coupon (WAC). Because collections and credit loss protection otherwise distributable as interest and principal to the certificate holders may be used to pay for such expenses, Fitch adjusted the credit enhancement (CE) upwards by 25 basis points (bps) for the class A bonds, 20bps for class B-1, 15bps for class B2, and 10bps for classes B-3 and B-4.
Market Value Decline Sensitivity: Fitch considered further market value decline (MVD) sensitivities, in addition to those generated by its sustainable home price (SHP) model. These scenarios aligned Fitch's 'Asf' sustainable MVD (sMVD) assumptions with peak-to-trough MVDs experienced during the housing crisis through 2009. The sensitivity analysis, which was factored into Fitch's loss expectations, resulted in applying an sMVD of 18% down from 22%.
In its analysis, Fitch considered additional sMVD stress assumptions to those generated by the SHP model. These supplementary scenarios reflected base case sMVDs that aligned Fitch's 'Asf' sMVD stress assumptions with peak-to-trough MVDs experienced during the housing crisis through 2009. This is consistent with Fitch's view as described in its U.S. RMBS Loan Loss Model Criteria (dated December 2013, available on its website at www.fitchratings.com), which associates the recent national housing recession and related performance observations with an 'Asf' stress. The result of this sensitivity analysis was included in the consideration of the loss expectations for this transaction. The sensitivity analysis resulted in decrease in the base sMVD from 22.1% to 17.8%.
Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper MVDs than assumed at both the metropolitan statistical area (MSA) and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.
Fitch conducted sensitivity analysis determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the model-projected 22.1% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted sensitivities to determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.
Fitch's stress and rating sensitivity analysis are discussed in its presale report released today Citigroup Mortgage Loan Trust 2014-J1', available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'U.S. RMBS Rating Criteria' (July 16, 2013);
--'U.S. RMBS Loan Loss Model Criteria' (Dec. 23, 2013);
--'U.S. RMBS Cash Flow Analysis Criteria' (April 16, 2014).
Applicable Criteria and Related Research: Citigroup Mortgage Loan Thrust 2014-J1 (US RMBS)
Global Structured Finance Rating Criteria
U.S. RMBS Rating Criteria
U.S. RMBS Loan Loss Model Criteria
U.S. RMBS Cash Flow Analysis Criteria