News Column

Fitch Takes Various Rating Actions on 223 U.S. RMBS Deals

August 28, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken various rating actions on 223 U.S. RMBS transactions. The transactions reviewed consisted of 24 Federal Housing Administration/U.S. Department of Veteran Affairs (FHA/VA), 63 Closed-End Second Lien (CES) and Home Equity Line of Credit (HELOC), 15 high loan-to-value (HLV) and 121 Manufactured Housing (MH) U.S. residential mortgage-backed securities (RMBS) transactions.

Rating Action Summary:

-- 580 classes (94%) affirmed;

-- 27 classes (5%) upgraded;

-- 8 classes (1%) downgraded.

A spreadsheet detailing the actions can be found on Fitch's website by performing a title search for 'U.S RMBS Rating Actions for August 28, 2014' or by using 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

Performance has remained stable for transactions in this review over the past six months. The aggregate percentage of loans that were 60 or more days delinquent fell by roughly half a percentage in most sectors reviewed, with the exception of HELOC loans, where delinquency rose by 1.5%. The underlying collateral continues to benefit from the rising home price environment even as the pace of price gains has begun to moderate.

Seven of the eight downgraded classes had a distressed rating prior to the review. Downgrades on distressed ratings occur as expected default becomes more imminent. The remaining downgraded class had an investment grade rating prior to the review. This downgrade was due to a low remaining loan count and tail risk related to a pro-rata payment structure.

More than half of the upgrades in this review previously held an investment grade rating. These classes have strengthened since the last review as their expected payoff-in-full becomes more imminent. Additional investment grade upgrades were constrained due to extended projected payoff timelines.

RATING SENSITIVITIES

A detailed list of Fitch's updated probability of default (PD), loss severity (LS), and expected loss (XL) 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 uses pool level collateral data to analyze the FHA/VA, CES, HELOC, HLV, and MH transactions. For FHA/VA transactions, Fitch determines the PD using the pre-2004 subprime vintage average derived from Fitch's non-prime loss model and adjusted for pool specific performance.

The PD for CES and MH transactions is typically based on the subprime vintage average derived from Fitch's non-prime loss model. A small number of CES transactions use the prime or Alt-A vintage average PD, since these product types better reflect the collateral characteristics and performance of those transactions. The Alt-A vintage average from Fitch's non-prime loss is used for HELOC and HLV transactions. For CES, HELOC, and HLV transactions, the PD is adjusted for pool specific performance for all mortgage pools.

To determine the LS for FHA/VA transactions, Fitch relies on the FHA/VA sector historical average adjusted for the pool-specific composition of FHA, VA, and RHS loans. Fitch assumes a base case LS of 6% for FHA/RHS loans and LS of 20% for VA loans. The aggregate average base case severity was 13% for all transactions. In cases where there is limited transparency on the composition of FHA, VA and RHS loans, the severity average of the FHA/VA loans is used, which is 9%. Fitch assumes 100% servicer advancing in the 'CCCsf-AAsf' rating stresses but will discount the advancing in the 'AAAsf' rating stress.

For the MH sector, the LS assumption for each transaction is determined by each issuer's 12 month historical average. For the CES, HELOC, and HLV transactions, Fitch assumes 100% severity for all rating stresses and no servicer advancing.

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 further 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.

The spreadsheet 'U.S RMBS Rating Actions for August 28, 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 Criteria' (June 24, 2014);

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

--'U.S. RMBS Loan Loss Model Criteria' (Dec. 23, 2013);

--'U.S. RMBS Cash Flow Analysis Criteria' (April 16, 2014);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);

--'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 Rating Actions for August 28, 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=767728

U.S. RMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750110

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

U.S. RMBS Loan Loss Model Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727095

Structured Finance Recovery Estimates for Distressed Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656557

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725537

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

U.S. RMBS Cash Flow Analysis Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746027

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=860114

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.



Fitch Ratings

Presenting Analyst

Ryan O'Loughlin

Analyst

+1-212-908-0387

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Committee Chairperson

Grant Bailey

Managing Director

+1-212-908-0544

or

Media Relations

Alyssa Castelli, +1 212-908-0540

alyssa.castelli@fitchratings.com

Source: Fitch Ratings


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