Fitch Reviews U.S. Scratch & Dent RMBS

NEW YORK--()--Fitch Ratings has taken various rating actions on 943 classes in 144 U.S. Scratch and Dent RMBS transactions. The transactions reviewed are generally composed of residential mortgage loans that were originated with exceptions to the originator's underwriting guidelines or had experienced payment problems prior to issuance. The reviewed transactions were issued between 1996 and 2008.

A spreadsheet detailing Fitch's rating actions on the affected transactions can be found using the web link for 'U.S Scratch and Dent RMBS Rating Actions for Aug. 6, 2014'.

Summary of the rating actions:

--911 classes affirmed;

--20 classes upgraded;

--12 classes downgraded.

Fitch affirmed and subsequently withdrew the ratings on all classes that were rated 'Dsf', with a recovery estimate of 0% and had no principal balance remaining.

KEY RATING DRIVERS:

Downgrades made up just over 1% of all rating actions. Of the classes that were downgraded only two held investment grade ratings prior to the review. The remaining downgrades were distressed ratings transitioning downwards as default becomes more likely. All of the downgrades were one rating category revisions.

Upgrades made up 2% of all rating actions. Classes that were upgraded to investment grade had on average 80% credit enhancement and are all expected to pay off in less than four years. The rating committee limited upgrade revisions for a number of classes, primarily due to a long remaining life.

Collateral performance changed little since the last review. Serious delinquency fell by less than 1% on average and prepayment trends were mostly flat across all vintages

RATING SENSITIVITIES:

When projecting default and loss severity, Fitch relies on its non-prime loan-level loss model. For transactions without loan-level data available, Fitch assumed default and loss severity assumptions consistent with subprime vintage averages as determined by the loss model, adjusted for pool-specific product composition and performance.

Fitch analyzes each bond in a number of different scenarios to determine the likelihood of full principal recovery and timely interest. The scenario analysis incorporates various combinations of the following stressed assumptions: mortgage loss, loss timing, interest rates, prepayments, servicer advancing, and loan modifications.

The 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 outcomes. 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.

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 nationally to decline further 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.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. RMBS Surveillance Criteria' (June 24, 2014);

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'U.S. RMBS Loan Loss Model Criteria' (Dec. 23, 2013);

--'U.S. RMBS Cash Flow Analysis Criteria' (April 16, 2014);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 23, 2014);

--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (May 28, 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);

--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 18, 2011).

Applicable Criteria and Related Research: U.S Scratch and Dent RMBS Rating Actions for Aug. 6, 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756649

U.S. RMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750110

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

U.S. RMBS Loan Loss Model Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727095

U.S. RMBS Cash Flow Analysis Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746027

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725537

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions

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

Counterparty Criteria for Structured Finance and Covered Bonds

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

Structured Finance Recovery Estimates for Distressed Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656557

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=845874

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, Inc.
Presenting Analyst
Ryan O'Loughlin, +1-212-908-0387
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings, Inc.
Presenting Analyst
Ryan O'Loughlin, +1-212-908-0387
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com