Fitch Takes Various Actions on 221 U.S. RMBS Deals

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken various rating actions on 571 classes in 221 U.S. RMBS transactions. The transactions reviewed consisted of 24 Federal Housing Administration/U.S. Department of Veteran Affairs (FHA/VA), 59 Closed-End Second Lien (CES), seven Home Equity Line of Credit (HELOC), 13 high loan-to-value (HLV), and 117 Manufactured Housing (MH) U.S. residential mortgage-backed securities transactions.

Rating Action Summary:

--499 classes affirmed;

--49 classes upgraded;

--23 classes downgraded.

In addition, eight classes had been paid in full, and 18 classes that were previously rated 'Dsf' and have no outstanding balance had their ratings withdrawn, as they are no longer considered relevant to Fitch's coverage.

A spreadsheet detailing Fitch's rating actions can be found at 'www.fitchratings.com' by performing a title search for 'U.S. RMBS Rating Actions for Feb. 29, 2016', or by using the link provided.

KEY RATING DRIVERS

The underlying collateral has improved moderately since the last review in March of 2015, with the exception of MH transactions. The percentage of MH loans 60 or more days delinquent has increased roughly 80 basis points (bps) since last review, while the percentage of loans 60 or more days delinquent across all other sectors saw a decrease of roughly 109 bps.

Fitch's U.S. RMBS Loan Loss Model is currently undergoing its annual review. Preliminary indications are that potential model enhancements may result in modestly lower expected losses on average, but a small proportion of pools may see a modest increase in loss expectations. In order to protect against the risk of higher future loss expectations, ratings on classes that were eligible for upgrades of more than one category were limited to one rating category. Six classes were affected by the one-category upgrade cap.

Approximately 88% of the total classes under review were affirmed, while 9% were upgraded and 4% were downgraded. Of the total classes under review, 1% have been paid in full since the last review. All but two of the downgrades in this review were downgrades of classes that previously had distressed ratings.

Roughly 3% of the classes reviewed had their ratings withdrawn immediately following the rating action. All of those withdrawn were rated 'Dsf' with no remaining balance and no projected recoveries.

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 'U.S. 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 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 U.S. RMBS Loan 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 U.S. RMBS Loan 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 loss model 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 14% for all FHA/VA transactions.

For the MH sector, the LS assumption for each transaction ranges from 60%-90% and is based upon each issuer's 12 month historical average. For CES, HELOC, and HLV transactions Fitch assumes 100% severity for all rating stresses.

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.

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 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.

U.S. RMBS Rating Actions for Feb. 29, 2016https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878408

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. 19 Dec 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

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. 09 Mar 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863276

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. 06 Apr 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863973

U.S. RMBS Loan Loss Model Criteria (pub. 03 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868923

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. 01 Jun 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866259

Additional Disclosures

Dodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1000175

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000175

Endorsement Policyhttps://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/20160229006531/en/

Fitch Ratings
Surveillance Analyst (FHA/VA/CES/HELOC/HLV):
Roger Lin, +1-212-908-0778
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Surveillance Analyst (MH):
Rachel Noonan, +1-212-908-0224
Director
or
Committee Chairperson:
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
[email protected]

Source: Fitch Ratings

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