Fitch Reviews U.S. Prime RMBS Sector

NEW YORK--()--Fitch Ratings has taken various rating actions on 12,088 classes in 862 U.S. Prime residential mortgage backed security (RMBS) transactions.

Rating Action Summary:

--11,361 classes (94%) affirmed;

--218 classes (2%) upgraded;

--509 classes (4%) downgraded.

In addition, Fitch subsequently withdrew the ratings on 2,999 classes. Ratings were withdrawn if the classes have already defaulted and have no principal balance remaining or if the weighted average number of loans in the pool underlying the class was currently less than 10. Almost all classes with withdrawn ratings were rated 'Dsf' prior to the review.

A spreadsheet detailing the actions can be found on Fitch's website by performing a title search for 'U.S. RMBS Prime Rating Actions for Dec. 12, 2014' or by clicking the link. In addition, a summary of the mortgage pool and bond analysis can be found by performing a title search for 'RMBS Loss Metrics.'

KEY RATING DRIVERS

The performance of prime RMBS loans has remained stable since the last review. All prime vintages later than 2004 have shown marginal improvements in the percentage of loans 60 or more days delinquent. Loans collateralizing transactions issued in 2004 or earlier, however, have seen their serious delinquency rates increase roughly 40 basis points. The deterioration in these vintages is likely driven by an adverse selection of the remaining borrowers, as the stronger credit borrowers have refinanced.

The improving performance of the later vintage pools has contributed to lower average loss assumptions. On average Fitch's base case loss projections declined roughly 3% since the last review.

The revised loss assumptions also reflect recent changes that Fitch made to its loan loss model. While the model's core methodology has not materially changed, Fitch has made revisions to its home price assumptions and has made several key enhancements to better reflect recent probability of default and loss severity trends. A description of the changes can be found in the report 'U.S. RMBS Loan Loss Model Criteria.'

The majority of the investment grade downgrades in this review were caused by pools with small remaining loan counts. The smaller number of loans introduces increased tail risk for the transactions and Fitch increases its loss assumptions with concentration penalties to reflect this. Fitch also applies rating caps for mortgage pools with remaining loan counts below 75. While downgrades outnumbered upgrades, both were a relatively small percentage of the total classes outstanding. 94% of all classes had their ratings affirmed.

RATING SENSITIVITIES:

A detailed list of Fitch's updated probability of default, loss severity, and expected loss can be found by performing a title search for 'RMBS Loss Metrics' at 'www.fitchratings.com'. The report provides a summary of base-case and stressed scenario projections.

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. 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.

The spreadsheet 'U.S. RMBS Prime Rating Actions for Dec. 12, 2014' provides the contact information for the performance analyst.

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

Applicable Criteria and Related Research:

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

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

--'U.S. RMBS Loan Loss Model Criteria' (Nov. 17, 2014);

--'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. RMBS Prime Rating Actions for Dec. 12, 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838368

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=950275

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Contacts

Fitch Ratings
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, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
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, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com