NEW YORK--(BUSINESS WIRE)--Analysis of the first publicly rated post crisis re-performing RMBS loan transaction contains a notable deficiency, according to Fitch Ratings.
Earlier this week, the $184.9 million Bayview Opportunity Master Fund IIIa Trust 2014-9RPL was announced. Fitch has yet to review the transaction documents and analyze the credit attributes of the pool. That said, Fitch's review of publicly available information including the review of another rating agency's presale report indicates a notable deficiency in the collateral analysis.
Specifically, S&P elected to disregard the values derived from broker price opinions (BPOs) in lieu of original valuations adjusted for regional market value declines, which would have increased the average LTV to over 145% versus the approximately 90% LTV that it applied in its own internal modeling. Fitch believes that ignoring the BPO values dramatically increases the likelihood of underestimating potential loss severities and results in insufficient credit enhancement. Applying Fitch's loss criteria for similar collateral, the higher loan to values would result in a roughly 20% increase in projected default probability and 30% increase in projected loss severity for the mortgage pool in the base-case scenario.
For distressed or re-performing mortgage loans, the property values and the home price outlook are the primary drivers of Fitch's credit opinion. In general, Fitch believes BPO values provide greater accuracy of the property's value for seasoned collateral than simple property indexation. BPO's involve an exterior inspection, which indicates property condition and other details. Fitch has found that for distressed or re-performing loans, updated BPO valuations often indicate a value lower than an indexed property value due to some adverse selection of the properties.
According to S&P, over the past year, Bayview has sold approximately 43% of defaulted loans at an average of 73% of their current BPO values. Applying these ratios to the current transaction would result in a base case loss severity of over 50%. Rated stresses, therefore, would need to be significantly higher, especially if high investment grade ratings were considered.
Fitch also has some concerns with respect to the adequacy of third party diligence and potential mitigants. In addition, as most non-performing and re-performing transactions have been structured with sequential pay structures the modified pro-rata structure introduces additional risk.
Additional information is available at 'www.fitchratings.com'.
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