Fitch Reviews Legacy U.S. Alt-A and Subprime RMBS Transactions

NEW YORK--()--Fitch Ratings has taken various rating actions on 12,594 classes from 1,776 U.S. Alt-A and Subprime RMBS transactions collateralized with mortgage loans originated prior to 2008. One prime jumbo RMBS transaction was also reviewed. A summary of the ratings on the classes reviewed is as follows:

--88% affirmed;

--9% upgraded;

--1% downgraded;

--1% placed Rating Watch Negative;

--Less than 1% remain on Rating Watch Positive;

--1% paid in full.

A spreadsheet detailing Fitch's rating actions can be found at 'www.fitchratings.com' by performing a title search for 'U.S. Alt-A and Subprime Rating Actions for Dec. 8, 2015'.

KEY RATING DRIVERS

The rating actions reflect the positive collateral performance of the sectors. The average 60+ delinquency rate for the Alt-A sector has declined to 20.7% from 23.3% one year prior, and a peak of 34.0% in 2010. For the subprime sector, the average 60+ delinquency rate has declined to 27.0% from 31.2% one year prior, and a peak of 46.7% in 2010. The performance improvement has been driven by steady home price growth, declining unemployment, and positive selection among remaining borrowers.

The upgrades reflect an improvement in the relationship of credit enhancement to expected pool loss. Classes upgraded to 'AAsf' and 'AAAsf' are expected to be paid in full within the next 24 months. Roughly 5% of the upgraded classes exhibited positive rating pressure consistent with two or more rating categories above the prior rating, but all upgrades were limited to one rating category due to potential sensitivity to changes in collateral loss assumptions. Fitch's U.S. RMBS Loan Loss Model is currently undergoing its annual review. Preliminary indications are that potential model enhancements may result in modestly lower expected losses on average, but a small proportion of pools may see a modest increase in loss expectations.

Roughly half of the downgrades were one category downgrades of investment grade classes driven by collateral pools with low remaining loan counts. Per its published criteria for legacy RMBS transactions that lack structural mitigants, Fitch implements rating caps wherein minimum loan count thresholds must be met at each rating category. The other half of the downgrades consisted of distressed classes that incurred a principal writedown, and were downgraded to 'Dsf'.

One percent of the classes reviewed were placed on Rating Watch Negative. These classes exhibited negative rating pressure under Fitch's current collateral loss assumptions, but may not warrant a rating change if loss assumptions were modestly lower as a result of pending model enhancements. The ratings of classes placed on Rating Watch will be resolved following the completion of the annual model review.

Approximately 2% of the classes reviewed had their ratings withdrawn immediately following the rating action. The majority were rated 'Dsf' with no remaining balance and no projected recoveries. A small number of classes were withdrawn due to loan counts of 10 or fewer.

RATING SENSITIVITIES

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 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.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

U.S. Alt-A and Subprime Rating Actions for Dec. 8, 2015

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875216

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 09 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863276

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864368

U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863973

U.S. RMBS Loan Loss Model Criteria (pub. 03 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868923

U.S. RMBS Master Rating Criteria (pub. 01 Oct 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870427

U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 01 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866259

US RMBS Re-Performing Loan Criteria (pub. 21 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=811488

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=996243

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996243

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Surveillance Analyst (Alt-A)
Susan Hosterman
Director
+1-212-908-0670
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Surveillance Analyst (Subprime)
Craig Ganter
Analyst
+1-212-908-0736
or
Committee Chairperson
Grant Bailey
Managing Director
+1-212-908-0544
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Surveillance Analyst (Alt-A)
Susan Hosterman
Director
+1-212-908-0670
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Surveillance Analyst (Subprime)
Craig Ganter
Analyst
+1-212-908-0736
or
Committee Chairperson
Grant Bailey
Managing Director
+1-212-908-0544
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com