KEY RATING DRIVERS
Small Loan Count: The total loan count in this pool is 285 loans. RMBS pools with a small number of loans carry the risk that portfolio performance may be adversely impacted by a few assets that may underperform relative to the statistically derived assumptions underlying their ratings. To reduce potential ratings volatility arising from this risk later in the transaction's life, Fitch applied a penalty of approximately 1.09x to the pool's lifetime default expectations. The subordination floor also mitigates this risk.
Extraordinary Trust Expense Adjustment: For this transaction, the extraordinary trust expenses will be deducted from available funds as opposed to the pool's net weighted average coupon (WAC). Because collections and credit loss protection otherwise distributable as interest and principal to the certificateholders may be used to pay for such expenses, Fitch adjusted the credit enhancement (CE) upwards by 25 basis points (bps) for the class A bonds, 20bps for class B-1, 15bps for class B2, and 10bps for classes B-3 and B-4. Taking this adjustment into account, in the back-loaded CDR and benchmark CPR scenario, the class A certificates experience a minor principal write-down. However, in consideration of the high quality of the collateral pool and the probability of the back-loaded loss timing scenario as well as the conservatism of the assumed extraordinary trust expense, Fitch believes that the 'AAAsf' CE of 6.35% sufficiently protects the class A certificates of both default risk, as well as structural sensitivities.
Market Value Decline Sensitivity: Fitch considered further market value decline (MVD) sensitivities, in addition to those generated by its sustainable home price (SHP) model. These scenarios aligned Fitch's 'Asf' sustainable MVD (sMVD) assumptions with peak-to-trough MVDs experienced during the housing crisis through 2009. The sensitivity analysis, which was factored into Fitch's loss expectations, resulted in applying a base case sMVD of 18% down from 22%.
In its analysis, Fitch considered additional sMVD stress assumptions to those generated by the SHP model. These supplementary scenarios reflected base case sMVDs that aligned Fitch's 'Asf' sMVD stress assumptions with peak-to-trough MVDs experienced during the housing crisis through 2009. This is consistent with Fitch's view as described in its U.S. RMBS Loan Loss Model Criteria (dated
Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper MVDs than assumed at both the metropolitan statistical area (MSA) and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.
Fitch conducted sensitivity analysis determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the model-projected 22.1% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted sensitivities to determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.
Additional information is available at 'www.fitchratings.com'.
In addition to the information sources identified in Fitch's criteria listed below, Fitch's analysis incorporated data tapes, due diligence results, deal structure and legal documents from the 17g5 website available on 'www.structuredfn.com'.
--'Global Structured Finance Rating Criteria' (
--'U.S. RMBS Rating Criteria' (
--'U.S. RMBS Loan Loss Model Criteria' (
--'U.S. RMBS Cash Flow Analysis Criteria' (
--'U.S. Residential Mortgage Loan Representations and Warranties Criteria' (
--'U.S. RMBS Originator Review and Third-Party Due Diligence Criteria' (
--'Rating Criteria for US Residential and Small Balance Commercial Mortgage Servicers' (
--'Counterparty Criteria for Structured Finance and Covered Bonds' (
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (
--'U.S. RMBS Surveillance and Re-REMIC Criteria' (
--'Citigroup Mortgage Loan Trust 2014-J1 (US RMBS)' (
--'Citigroup Mortgage Loan Trust 2014-J1 Appendix' (
Global Structured Finance Rating Criteria
U.S. RMBS Rating Criteria
U.S. RMBS Loan Loss Model Criteria
U.S. RMBS Cash Flow Analysis Criteria
U.S. RMBS Representations and Warranties Criteria
U.S. RMBS Originator Review and Third-Party Due Diligence Criteria
Rating Criteria for US Residential and Small Balance Commercial Mortgage Servicers
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Interest Rate Stresses in Structured Finance Transactions
U.S. RMBS Surveillance and Re-REMIC Criteria
Source: Fitch Ratings
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