NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: U.S. Prime RMBS Performance Declines
The sputtering U.S. housing market will result in more prime borrowers being pushed further underwater on their mortgages, according to Fitch Ratings in a new report.
Recent analysis by Fitch shows that more than a third of all prime borrowers in private-label securitizations are currently in a negative equity position, or as it is commonly referred to, 'underwater', on their mortgages.
Despite some recent modest gains, home prices have further to fall before any sustained recovery takes hold, according to Managing Director Grant Bailey. 'With home prices likely to decline another 10%, roughly half of prime borrowers will wind up underwater on their mortgage,' said Bailey.
Fitch also found over 12% of all prime borrowers are seriously delinquent on their mortgages. 'Prime mortgage default rates will stay elevated as home prices fall further and unemployment remains high,' said Bailey.
The combination of declining equity, rising delinquencies, growing payment shock risk and the application of Fitch's updated criteria led to further negative rating actions on prime RMBS transactions in Fitch's latest ratings review. While Fitch either affirmed or upgraded 58% of prime RMBS ratings, 42% of prime RMBS ratings, primarily those already rated 'B' or below, were downgraded further by Fitch. Further, approximately 97% of investment-grade classes that Fitch downgraded were already on Rating Watch Negative prior to the rating revision.
Fitch has cited borrower equity as the pre-eminent driver of mortgage default performance in its new rating model. The number of underwater borrowers is likely to increase over time. With this latest rating review now complete, however, the application of Fitch's new criteria should result in greater rating stability going forward.
Additional information on Fitch's most recent prime RMBS rating actions is available in the press release published earlier today. 'Fitch Completes Review of U.S. Prime RMBS Ratings Using New Model' is available at 'www.fitchratings.com '.
Fitch's full 'US Prime RMBS Performance Declines Continue' report is also available on the Fitch web site under 'Latest Research' or by clicking on the above link.
Additional information is available at 'www.fitchratings.com ,