Fitch Takes Various Rating Actions on 187 U.S. RMBS RE-REMICs
Fitch Ratings has taken various actions on 187 U.S. RMBS resecuritization trusts (Re-REMICs) as a part of Fitch's continued surveillance.
A spreadsheet detailing Fitch's rating actions on the affected transactions can be found using the web link below for 'U.S. RMBS Re-REMIC Rating Actions for Oct. 25, 2012'.
A summary of the rating actions:
--6% of classes downgraded;
--4% of classes placed on Rating Watch Negative;
--11% of classes remain on Rating Watch Negative;
--Of the approximately 80% of ratings affirmed, approximately 10% are on Positive Outlook or Positive Watch.
Fitch expects to resolve the status of classes on Rating Watch Negative and Rating Watch Positive before the end of this year.
All rating downgrades occurred in transactions issued in 2009 or earlier and over 90% of the downgraded classes are collateralized with Alt-A mortgage pools. Fitch has not rated any Alt-A Re-REMIC transactions since 2009. Approximately 97% of downgraded classes were on Rating Watch Negative prior to the rating revision.
The downgrades within seasoned Alt-A transactions were driven by higher projected mortgage pool losses and reduced projected cash flow to the Re-REMIC.
The revised Alt-A mortgage losses reflected enhancements to Fitch's loan loss model published in August 2012. The model enhancements include revisions to the rating stress scenarios to improve consistency with the rating methodology of new-issue transactions. Additionally, the logic predicting servicer advancing and liquidation timelines was revised to better reflect recent market trends. Finally, the agency's home price model was refined to allow for more granular regional projections.
For downgraded Alt-A classes, the revised average mortgage pool loss projection in the 'Bsf' scenario is 33%. Fitch assumes home prices will decline by 10% below a sustainable level in a 'Bsf' scenario. On average, the downgraded Alt-A classes currently benefit from close to 50% credit enhancement.
Despite high levels of credit enhancement, Alt-A Re-REMIC actions were driven by higher stressed losses as well as a structural feature causing the transactions to redirect cash flow and magnify principal losses.
Many of the affected Alt-A securities share a common transactional structure found in the underlying RMBS which uses mortgage principal cash flow to pay bond interest when mortgage interest collections are insufficient. By 'borrowing' principal collections to pay bond interest (rather than paying down the bond balance), the bond ultimately recovers less principal and incurs larger writedowns. This feature can have significant implications for Re-REMICs which have underlying mortgage pools with a high percentage of loan modifications and/or underlying RMBS which have an implied writedown feature. Mortgage loan modifications and/or an implied bond writedown feature reduce mortgage interest relative to the bond interest due, increasing the use of principal collections to cover bond interest. While this feature was considered in the initial rating analysis for these transactions, it has resulted in increased sensitivity to higher-than-expected mortgage pool losses.
Re-REMIC transactions collateralized with Prime mortgage pools have generally performed notably better than Alt-A Re-REMICs. Only 12 of the 1,591 Prime Re-REMIC classes reviewed experienced a downgrade. Of the Prime Re-REMIC transactions issued since the end of 2009, close to 60% are on Outlook Positive or Rating Watch Positive, indicating a high likelihood of an upgrade in the future. Re-REMICs issued since the end of 2009 generally benefit from higher credit enhancement than prior vintage transactions.
As part of the review which included over 2,000 rated classes, Fitch withdrew the ratings on 36 Re-REMIC classes due to a small remaining loan counts on an underlying mortgage pool. The withdrawn classes were collateralized with mortgage pools with less than 10 remaining loans. On average, the transactions were over 10 years seasoned and had approximately 3% of their initial balance remaining.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'U.S. RMBS Surveillance Criteria' (Oct. 9, 2012);
--'U.S. Residential Mortgage Re-REMIC Criteria' (Aug. 10, 2012);
--'U.S. RMBS Loan Loss Model Criteria' (Aug. 10, 2012);
--'Criteria for Rating Caps in Global Structured Finance Transactions' (Aug. 2, 2012);
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (March 20, 2012);
--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 18, 2011);
--'Fitch Reviews U.S. Prime RMBS Sector' (Oct. 3, 2012);
--'U.S. Prime RMBS Rating Actions for Oct. 3, 2012';
--'U.S. Prime Pre-2005 RMBS: Not What It Used to Be' (Sept. 6, 2012);
--'Fitch Places Various U.S. RMBS Classes on Rating Watch Negative' (Aug. 17, 2012);
--'U.S. RMBS Rating Actions for Aug. 17, 2012';
--'Fitch Reviews U.S. Alt-A RMBS Sector' (June 6, 2012);
--'U.S. Alt-A RMBS Rating Actions for June 6, 2012'.
Applicable Criteria and Related Research: Fitch Takes Various Rating Actions on Enhanced U.S. Municipal Bonds and TOBs
U.S. RMBS Surveillance Criteria
U.S. Residential Mortgage Re-REMIC Criteria
U.S. RMBS Loan Loss Model Criteria
Criteria for Rating Caps in Global Structured Finance Transactions
Global Structured Finance Rating Criteria
Counterparty Criteria for Structured Finance Transactions
Criteria for Interest Rate Stresses in Structured Finance Transactions
Structured Finance Recovery Estimates for Distressed Securities
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