KEY RATING DRIVERS
Payment Shock Exposure: The pool consists entirely of ARM loans while more than half also have interest-only (IO) features originated prior to
High Geographic Concentration: The pool's primary concentration risk is
Documentation Adjustment: For borrowers who have accounts with FRB with reserves that meet a certain threshold, FRB's asset verification process consists of capturing a screenshot of the borrower's account, which is categorized as 'Stated, Partially Verified' on the
Seasoned Property Value Exception: Under Fitch's 'U.S. RMBS Master Criteria' dated
Small Loan Count: While total loan count in this pool is 291, the weighted average number of loans (WAN) is 218. Transactions with a small number of loans carry the risk that portfolio performance may be adversely impacted by a few assets that underperform relative to the statistically derived assumptions underlying their ratings. Therefore, Fitch applied a penalty of approximately 1.18x to the pool's lifetime default expectations to account for this risk.
After Fitch determines credit ratings through a rating stress scenario analysis, additional sensitivity analyses are considered. The analyses provide a defined stress sensitivity to demonstrate how the ratings would react to steeper MVDs than that assumed at issuance as well as a defined sensitivity that demonstrates the stress assumptions required to reduce a rating by one full category, to non-investment grade, and to CCCsf'.
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 in the U.S. during the recent financial crisis (2007 - 2009). This is consistent with Fitch's view as described in its U.S. RMBS Loan Loss Model Criteria (dated
Another sensitivity analysis was focused on 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 19.4% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted defined rating sensitivities, which determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'. For example, additional MVDs of 5%, 24% and 48% would potentially reduce the 'AAAsf' rated class down one rating category, to non-investment grade, and to 'CCCsf', respectively.
Fitch's stress and rating sensitivity analysis are discussed in the presale report titled '
Additional information is available at 'www.fitchratings.com'.
--'Global Structured Finance Rating Criteria' (
--'U.S. RMBS Loan Loss Model Criteria' (
--'U.S. RMBS Master Rating Criteria' (
--'Counterparty Criteria for Structured Finance and Covered Bonds' (
--'U.S. RMBS Cash Flow Analysis Criteria' (
--'Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers' (
--'U.S. RMBS Surveillance and Re-REMIC Criteria' (
--'U.S. RMBS Qualified and Non-Qualified Mortgage Criteria' (
Counterparty Criteria for Structured Finance and Covered Bonds
U.S. RMBS Cash Flow Analysis Criteria
U.S. RMBS Qualified and Non-Qualified Mortgage Criteria
U.S. RMBS Originator Review and Third-Party Due Diligence Criteria -- Effective
U.S. RMBS Surveillance and Re-REMIC Criteria
Global Structured Finance Rating Criteria - Effective from
U.S. RMBS Loan Loss Model Criteria
U.S. RMBS Master Rating Criteria
Source: Fitch Ratings
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