NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed and subsequently withdrawn the ratings on three classes and downgraded the ratings of three classes from two U.S. prime jumbo RMBS transactions issued in 2002 and 2004: WAMU 2002-S8 and GSR Mortgage Loan Trust 2004-12. The ratings of all six classes were previously on Rating Watch Negative.
A spreadsheet detailing Fitch's rating actions can be found at 'www.fitchratings.com' by performing a title search for 'U.S. RMBS RPL Rating Actions for October 19, 2016', or by using the link provided.
KEY RATING DRIVERS
The rating affirmations on the group 2 seniors from WAMU 2002-S8 reflect their limited loss exposure to the largest loan in the pool. The loan in question makes up roughly 32% of the group 2 mortgage pool and has been delinquent or in foreclosure for most of the last six years. Despite its large size relative to the pool and its poor performance history, Fitch estimates that the borrower has a significant amount of equity in the property, and that losses would be minimal even under Fitch's 'BBsf' home price stress scenario.
Following the rating actions on the WAMU 2002-S8 group 2 seniors, the ratings were withdrawn due to a small weighted average number of loans (WAN) remaining in the pool. While 31 loans remain in pool 2, the largest loan is roughly 7x the next largest loan, which reduces the WAN of the pool to 8. Per Fitch's criteria, ratings backed by pools with a WAN less than 10 will be withdrawn. The remaining loans have roughly one year remaining in their original term to maturity of 15 years. The pool factor (current pool UPB/UPB at issuance) is less than 1%, and the senior bond factors are all 2% or lower.
The rating actions on the group 2 seniors from GSR 2004-12 reflect a revision to the third-party cash flow model Fitch uses to analyse the transaction, which is provided by Intex Solutions, Inc. The model revision relates to the cross-collateralization between bond groups 2 and 3. This transaction's cross-collateralization structure is uncommon and differs from the typical legacy prime jumbo structure, including structures from the same issuer as the transaction in question. The prior version of the cash flow model assumed standard cross-collateralization between bond groups 2 and 3, and the revised model correctly assumes more limited cross collateralization. As a result, the ratings of the group 2 senior notes, which are under-collateralized and were previously on Rating Watch Negative, were downgraded to 'CCCsf' from 'BBsf'. The new rating represents a variation from Fitch's criteria, which would have resulted in a model-derived rating of 'Csf' based on projected principal recovery and interest shortfall thresholds. Because the credit losses are not currently expected to occur for approximately eight years, the rating committee assigned a 'CCCsf' rating to more appropriately reflect the imminency of the bond's default risk.
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.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
Additional information is available at www.fitchratings.com.
Sources of Information:
As identified in Fitch's report 'US RMBS Surveillance and Re-REMIC Criteria', the sources of information used to assess these ratings include data provided by trustees, servicers, CoreLogic LoanPerformance and Intex Solutions, Inc.
Criteria for Country Risk in Global Structured Finance and Covered Bonds (pub. 26 Sep 2016)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 08 Mar 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)
U.S. RMBS Cash Flow Analysis Criteria (pub. 15 Apr 2016)
U.S. RMBS Loan Loss Model Criteria (pub. 12 May 2016)
U.S. RMBS Master Rating Criteria (pub. 27 Jun 2016)
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 17 Jun 2016)
U.S. RMBS Rating Watch Negative Resolution for October 19, 2016
Dodd-Frank Rating Information Disclosure Form
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