Fitch, S&P Downgrade Subprime, Jumbo RMBS Transactions

Fitch Ratings and Standard & Poor’s have downgraded more residential mortgage backed securities transactions.

Fitch has taken various rating actions on 712 Pre-2005 vintage U.S. subprime RMBS transactions in the course of its ongoing review of subprime RMBS. Fitch said the average updated expected collateral losses as a percentage of the original pool balance for the Pre-2003, 2003 and 2004 vintages are 6.3%, 4.5% and 6.3%, respectively. As a percentage of the remaining pool balances, the average expected losses for the three cohorts are 25%, 23% and 28%, respectively. The remaining pool balances of the reviewed transactions have paid down to approximately 9% of the original pool balances on average.

“The combination of continued home price and employment decline has increased negative pressure on the roll-rates of performing borrowers into a delinquency status despite the significant seasoning of the loans. Although net roll-rates have moderated from the seasonal high in January, the net roll-rates for the Pre-2005 Subprime vintages in the first five months of 2009 were approximately double that experienced during the same period in 2008 and more than double that experienced over the same period in any year prior to 2008 when modified loans are excluded. The deterioration in the market environment appears to be outweighing any expected improvement in performance due to seasoning.”

The market and performance trends reflected in the updated loss projections have resulted in further rating downgrades for the remaining classes outstanding in the Pre-2005 vintages.

Standard & Poor’s lowered its ratings on 1,784 classes from 167 residential mortgage-backed securities (RMBS) transactions backed by U.S. prime jumbo mortgage loan collateral issued in 2005, 2006, and 2007.  S&P also removed 1,249 of the lowered ratings from CreditWatch with negative implications. In addition, S&P affirmed ratings on 1,028 classes from 94 of the downgraded transactions and from 13 additional transactions.  S&P removed 586 of the affirmed ratings from CreditWatch negative.

The downgrades reflect our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings, given our current projected losses.

Fitch

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