Rating Action Summary:
-- 1,072 classes affirmed;
-- 11 classes upgraded;
-- 25 classes downgraded.
KEY RATING DRIVERS
The underlying collateral has improved moderately since the last review. On average, projected Loss Severities (LS) for the underlying Alt A transactions have declined by 1% in the base case across all vintages. Probability of Default (PD) has also improved leading to an overall decline in projected losses of approximately 1% for all rating stresses. This slight improvement is due in part to the lower serious delinquency rate. Further, projected losses continue to benefit from the rising home price environment although the rate of increase has started to slow the past few periods.
Even with the lowered loss projections, upgrades were generally limited and made up only 1% of all rating actions. No class that was previously rated 'CCCsf' or below was upgraded during this review. Upgrades to investment grade ratings were limited for a number of classes by long remaining lives. Upgrades to a smaller number of classes were also limited because of interest shortfalls on the underlying classes.
A large percentage of the investment grade downgrades were due to interest shortfalls on the Re-REMIC classes. These classes are still projected to recover the entire principal amount but are at risk for not recouping existing shortfalls. The remainder of the investment grade downgrades were driven by a deterioration in credit performance. Many of these Re-REMIC classes are backed by bonds that have already defaulted and are now projected to recover less principal than previously. All other downgrades were distressed bonds moving down the rating scale as default becomes imminent.
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.
Classes with a rating below 'CCCsf' are likely to default at some point in the future. As default becomes more imminent, those classes are expected to 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 areas 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.
The spreadsheet 'U.S. RMBS Re-REMIC Rating Actions for
Additional information is available at 'www.fitchratings.com'.
--'U.S. RMBS Surveillance Criteria' (
--'Global Structured Finance Rating Criteria' (
--'U.S. RMBS Loan Loss Model Criteria' (
--'U.S. RMBS Cash Flow Analysis Criteria' (
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (
--'U.S Residential Mortgage Re-REMIC Criteria (
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (
--Finance and Covered Bonds' (
--'Structured Finance Recovery Estimates for Distressed Securities' (
Structured Finance Recovery Estimates for Distressed Securities
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions
U.S. Residential Mortgage Re-REMIC Criteria
Criteria for Interest Rate Stresses in Structured Finance Transactions
U.S. RMBS Cash Flow Analysis Criteria
Global Structured Finance Rating Criteria
U.S. RMBS Loan Loss Model Criteria
Source: Fitch Ratings
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