Fitch Reviews Legacy Prime Jumbo RMBS Transactions

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken various rating actions on 7,771 classes from 784 U.S. Prime Jumbo RMBS transactions collateralized with mortgage loans originated prior to 2009. Fitch affirmed the ratings for 88% of the classes reviewed, upgraded 4%, and downgraded 8%. Six classes were placed on Rating Watch Negative, and 20 classes were marked paid-in-full.

A spreadsheet detailing Fitch's rating actions can be found at 'www.fitchratings.com' by performing a title search for 'U.S. Legacy Prime Jumbo Rating Actions for Sept. 19, 2016'.

KEY RATING DRIVERS

The rating actions reflect the generally stable collateral performance of the sector. The average 60+ delinquency rate for the sector has declined to 8.5% from 9.1% one year prior, and a peak of 12.5% in 2012. The performance has been driven by steady home price growth, declining unemployment, and positive selection among remaining borrowers. While the aggregate mortgage loan performance has been stable to slightly positive, the performance has varied by loan term. The performance of 30-year loans has generally improved over the last several years, driven by steady home price growth, declining unemployment, and positive selection among remaining borrowers. In contrast, the performance of 15-year loans has deteriorated over the last several years due to the adverse selection among the few borrowers remaining in the pools.

The upgrades reflect an improvement in the relationship of credit enhancement to expected pool loss. Classes upgraded to 'AAsf' and 'AAAsf' are expected to be paid in full within the next 24 months.

Half of the classes downgraded were previously rated 'Bsf' or lower. Downgrades of classes rated 'CCCsf' or lower reflect a greater imminence of default or a recently observed default. Nearly all of the downgrades of investment-grade classes were one rating category in magnitude. The most common driver of investment-grade downgrades was collateral pools with low remaining loan counts. Per its published criteria for legacy RMBS transactions that lack structural mitigants, Fitch implements rating caps wherein minimum loan count thresholds must be met at each rating category. Transactions issued post-crisis generally include structural mitigants expected to prevent negative rating pressure as the remaining loan count declines.

Three classes from GSR Mortgage Loan Trust 2004-12 that are currently rated 'BBsf' were placed on Rating Watch Negative due to a revision to the third-party cash flow model Fitch uses to analyse the transaction, which is provided by Intex Solutions, Inc. The model revision relates to the cross-collateralization between bond groups 2 and 3. This transaction's cross-collateralization structure is uncommon and differs from the typical legacy prime jumbo structure, including structures from the same issuer as the transaction in question. The prior version of the cash flow model assumed standard cross-collateralization between bond groups 2 and 3, and the revised model correctly assumes more limited cross collateralization. As a result, the ratings of the group 2 senior notes, which are under-collateralized, are expected to be downgraded from 'BBsf' to a rating below 'Bsf'. The ratings of these three classes will be resolved in the coming weeks.

Approximately 3% of all classes reviewed had their ratings withdrawn immediately following the rating action. The majority were rated 'Dsf' with no remaining balance and no projected recoveries. A small number of classes were withdrawn due to weighted average loan counts of 10 or fewer.

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.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

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

Additional information is available at www.fitchratings.com.

Sources of Information:

As identified in Fitch's report 'US RMBS Surveillance and Re-REMIC Criteria', the sources of information used to assess these ratings include data provided by trustees, servicers, CoreLogic LoanPerformance and Intex Solutions, Inc.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)https://www.fitchratings.com/site/re/879815

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)https://www.fitchratings.com/site/re/882401

Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 08 Mar 2016)https://www.fitchratings.com/site/re/878513

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)https://www.fitchratings.com/site/re/883130

Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)https://www.fitchratings.com/site/re/864368

U.S. RMBS Cash Flow Analysis Criteria (pub. 15 Apr 2016)https://www.fitchratings.com/site/re/880006

U.S. RMBS Loan Loss Model Criteria (pub. 12 May 2016)https://www.fitchratings.com/site/re/880673

U.S. RMBS Master Rating Criteria (pub. 27 Jun 2016)https://www.fitchratings.com/site/re/882350

U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 17 Jun 2016)https://www.fitchratings.com/site/re/881806

Related Research

Prime Legacy Rating Action Reporthttps://www.fitchratings.com/site/re/887867

Additional Disclosures

Dodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011874

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011874

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/20160919006247/en/

Fitch Ratings
Surveillance Analyst:
Sean Nelson, +1-212-908-0207
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
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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