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
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.
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
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' (
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (
--'Counterparty Criteria for Structured Finance and Covered Bonds' (
--'Structured Finance Recovery Estimates for Distressed Securities' (
U.S. RMBS Surveillance and Re-REMIC Criteria
Global Structured Finance Rating Criteria
U.S. RMBS Loan Loss Model Criteria
Structured Finance Recovery Estimates for Distressed Securities
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions
Counterparty Criteria for Structured Finance and Covered Bonds
U.S. RMBS Cash Flow Analysis Criteria
Source: Fitch Ratings
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