Fitch Takes Various Actions on 10 U.S. RMBS Deals

NEW YORK--()--Fitch Ratings has taken various rating actions on 48 classes in 10 U.S. RMBS transactions. The transactions reviewed consisted of seven reverse mortgage (RM) transactions, one re-REMIC transaction which is backed by RM bonds, one re-performing loan (RPL) transaction, and one transaction primarily collateralized with mixed-use loans.

Rating Action Summary:

--27 classes affirmed;

--21 classes downgraded.

A spreadsheet detailing Fitch's rating actions can be found at 'www.fitchratings.com' by performing a title search for 'U.S. RMBS Rating Actions for July 8, 2016', or by using the link provided.

KEY RATING DRIVERS

The RM transactions in this review include five government-insured home equity conversion mortgage (HECM) transactions, and two uninsured jumbo RM transactions. All of the RM transactions reviewed were issued between 2006 and 2008.

The rating changes on the two uninsured jumbo RM transactions reflect a model correction identified through a model validation review of the U.S. reverse mortgage model. The correction affects the initial indexation of the property values, the projected accrued interest, projected costs and the projected liquidation timelines. Fitch has downgraded the ratings of three classes previously rated 'BBBsf' and 'BBsf' to 'Bsf'. Fitch has also downgraded the ratings on three classes previously rated 'Bsf' to 'CCCsf'. All of the downgraded classes were on Rating Watch Negative prior to today's rating actions.

The rating changes on the government-insured HECM transactions reflect a recent change to Fitch's U.S. RMBS Surveillance Criteria that caps all outstanding RM transaction ratings at 'BBBsf' to reflect relatively thin credit enhancement and the potential for tail risk. As a result of the change, Fitch has downgraded five classes to 'BBBsf' from 'Asf'. All of the downgraded classes were on Rating Watch Negative prior to today's rating actions.

The four Re-REMIC classes reviewed are straight pass-throughs from HECM transactions included in this review. Because they have no additional credit support, their ratings are mapped directly to the ratings of the underlying classes.

The affirmations of the RPL transaction that was issued in 2015 reflect collateral performance in line with expectations and a stable to positive relationship of credit enhancement to expected loss.

The downgrades of the mixed-use loan transaction were driven by outstanding interest shortfalls. Per Fitch's criteria, the ratings of classes with existing interest shortfalls are limited to 'Asf'.

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.

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. 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. RMBS Rating Actions for July 8, 2016

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884833

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. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

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 Seasoned and Re-Performing Loan Criteria (pub. 12 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880720

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=1008654

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008654

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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
Surveillance Analyst
Matthew Shaw
Associate Director
+1-212-908-0218
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Grant Bailey
Managing Director
+1-212-908-0544
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Surveillance Analyst
Matthew Shaw
Associate Director
+1-212-908-0218
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Grant Bailey
Managing Director
+1-212-908-0544
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com