NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken various rating actions on 1,010 classes from 56 U.S. Prime Jumbo RMBS transactions that were issued since 2012.
Rating Action Summary:
--924 classes affirmed;
--80 classes upgraded;
--Six classes paid in full.
A spreadsheet detailing Fitch's rating actions can be found at 'www.fitchratings.com' by performing a title search for 'U.S. Prime Jumbo RMBS Rating Actions for June 27, 2016', or by using the link provided.
KEY RATING DRIVERS
The rating actions reflect the high credit quality and the superior performance of the collateral. The transactions reviewed have an average FICO score of 769 and an average mark-to-market CLTV of 52%. All of the transactions reviewed have less than 1% of the outstanding pool balance in a 60-day or more delinquent state, with the vast majority of transactions having no delinquent loans. None of the transactions reviewed have incurred a realized loss to date.
The high credit quality is reflected in the low expected mortgage losses on the pools reviewed. In the unstressed base case, Fitch currently assumes approximately 10 basis points of loss on the remaining pool balance on average. In the low-probability and high-stress 'AAAsf' scenario, Fitch currently assumes just under 4% of loss on average.
Fitch upgraded the ratings of subordinate classes from 27 transactions as a result of demonstrated strong performance and an improved relationship between credit enhancement (CE) and collateral loss expectations. On average, the current CE percentage for classes that were upgraded is over 1.5x higher than the CE percentage at issuance. Due to strong home price growth to date and amortization, the average mark-to-market loan-to-value ratio of loans backing upgraded classes has declined to 47% from 67% at origination.
All upgrades were a single rating category in magnitude and were only considered for transactions with at least two years of seasoning. Several of the more seasoned transactions have relatively low remaining loans counts as a result of prepayments. However, all of the transactions reviewed have additional structural support in the form of fixed credit enhancement floors that mitigate tail risk. As a result, Fitch did not apply rating caps tied to small loans counts in this review.
Fitch upgraded a number of subordinate classes previously rated 'AAsf' to 'AAAsf'. These classes are projected to recover full principal in a collateral loss scenario more stressful than the 'AAAsf' scenario across a number of cash flow timing sensitivities. In addition, they are generally expected to be paid in full before the senior classes that were rated 'AAAsf' at issuance, due to a projected redirection of unscheduled principal related to the fixed CE floors.
The rating actions reflect two variations from criteria. The first relates to upgrade caps associated with long remaining bond life, as described in Fitch's report 'U.S. RMBS Surveillance and Re-REMIC Criteria'. Fitch typically limits upgrades above 'BBsf' for classes projected to be outstanding for over five years from the date of analysis. While all subordinate classes reviewed are expected to take longer than five years to be paid in full, such upgrades caps were not applied in all cases in this review due to the high quality and strong performance of the collateral, and the structural strength of the transactions. Classes that passed Fitch's standard upgrade thresholds and an additional deterministic stress test were not subject to the upgrade cap related to long remaining bond life. The deterministic test compared the transaction's fixed CE floor to projected losses assuming a stressed number of the largest loans in the pool liquidate with a conservative loss severity. This variation from criteria resulted in the one-category upgrade of 80 classes that otherwise would have been affirmed due to the upgrade cap.
The second variation from criteria in this review relates to a 'AAsf' rating cap for classes projected to incur interest shortfalls in a 'AAAsf' stress scenario, as described in Fitch's report 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions'. One class included in this review that is currently rated 'AAAsf' is projected to incur small interest shortfalls in projected periods more than twenty years in the future. Due to the immaterial amount of the cumulative projected shortfalls (less than 1 basis point of the current principal balance) and the time until the shortfalls are projected to occur, the rating cap was not applied. This variation from criteria resulted in the affirmation at 'AAAsf' of nine classes (the class mentioned above and eight linked interest-only and exchangeable classes) that would otherwise have been downgraded one category.
RATING SENSITIVITIES
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.
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.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Additional information is available at www.fitchratings.com.
U.S. Prime Jumbo RMBS Rating Actions for June 27, 2016
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884240
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882401
Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 08 Mar 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878513
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864368
U.S. RMBS Cash Flow Analysis Criteria (pub. 15 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880006
U.S. RMBS Loan Loss Model Criteria (pub. 12 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880673
U.S. RMBS Master Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882350
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 17 Jun 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881806
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008053
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008053
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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