Fitch Places HECM Reverse Mortgage RMBS Transactions on Rating Watch

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings places six classes on Rating Watch Negative (RWN) from five reverse mortgage (RM) RMBS transactions due to pending rating criteria revisions. The reviewed transactions were issued in 2006 and 2007. In addition, Fitch places four classes on RWN from one Re-REMIC transaction issued in 2008, which is backed by RM bonds.

A spreadsheet detailing Fitch's rating actions can be found at 'www.fitchratings.com' by performing a title search for 'US RMBS Reverse Mortgage Rating Actions for May 25, 2016'.

KEY RATING DRIVERS

The reverse mortgage transactions in this review include five government-insured home equity conversion mortgage (HECM) transactions.

As the government-insured HECM transactions are expected to incur only minimal losses, the majority support investment-grade ratings in spite of the relatively thin credit enhancement. Fitch expects collateral losses only to occur when a loan is liquidated as a Real Estate Owned (REO) property, the property takes longer than six months to liquidate, and the property liquidates for less than the value anticipated by the Federal Housing Administration (FHA). To date, collateral losses have been de minimis.

Fitch's rating methodology and model for reverse mortgage transactions are currently under review as part of an annual criteria update. Pending revisions will likely result in lower ratings for the classes outstanding. Rating revisions are expected to be one rating category.

The four Re-REMIC classes reviewed are straight pass-throughs from HECM transactions included in this review. Because they have no additional credit support, their ratings are mapped directly to the ratings of the underlying classes.

All classes being placed on RWN will have their ratings reviewed once the pending criteria changes have been finalized.

RATING SENSITIVITIES

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.

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 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.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

US RMBS Reverse Mortgage Rating Actions for May 26, 2016

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882353

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

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

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)

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

Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 08 Mar 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878513

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864368

U.S. RMBS Cash Flow Analysis Criteria (pub. 15 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880006

U.S. RMBS Loan Loss Model Criteria (pub. 12 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880673

U.S. RMBS Master Rating Criteria (pub. 21 Jan 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=876378

U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 21 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880243

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005154

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160526005848/en/

Fitch Ratings
Surveillance Analyst
Christine Yan
Director
+1-212-908-0838
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Suzanne Mistretta
Senior Director
+1-212-908-0639
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Momenta, XHEART, and QNX Build an Autonomous Driving Platform Certified to Global Safety Standards
• Noitom Robotics Releases HiPHI, One of the Largest High-Precision Human Motion Datasets Ever Made Public, at the World Robot Conference
• Aurentis Capital Group Announces Technology-Driven Trading Platform for Global Markets