Fitch Ratings has completed a preliminary rating review of the Prime, Alt-A, subprime and Re-REMIC RMBS sectors following the release of updated loan loss model criteria and surveillance criteria on Aug. 10, 2012.
Fitch has placed approximately 7.5% of all classes in the sectors referenced above on Rating Watch Negative as a result of the preliminary analysis. The rating actions reflect potential negative rating revisions for those classes. Fitch expects the majority of downgrades to be one-to-two rating categories and for all revisions to occur within 180 days. The model changes will not affect ratings on any Prime classes issued since the start of 2011.
A list of the classes can be found at 'www.fitchratings.com' by performing a title search for 'U.S. RMBS Rating Actions for Aug. 17, 2012.'
Key loan loss model improvements include:
--Enhancements to the logic predicting servicer advancing and liquidation timelines to better reflect recent market trends;
--Improved consistency of methodologies across the Prime, Alt-A and Subprime sectors;
--A refinement to the home price model to allow for more granular regional projections.
Fitch's model enhancements did not significantly affect loan loss projections on average for the Prime sector. However, Fitch placed more seasoned Prime classes on Watch Negative than in other sectors. The ratings on Prime classes issued prior to 2005 are expected to be more sensitive to the model changes due to the higher number of remaining investment-grade ratings and the lower credit enhancement levels.
Also, distinct from any model enhancements, Prime pre-2005 performance trends have recently been weaker on a relative basis than other RMBS cohorts and are therefore increasing negative rating pressure. Fitch expects to place additional Prime classes on Rating Watch Negative in the coming weeks reflecting those performance trends.
In addition to today's actions, 39 classes previously placed on Rating Watch will remain on Watch. Fitch expects to resolve the status of those 39 classes at the same time as the classes placed on Watch today.
These actions were reviewed by a committee of Fitch analysts.
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 & Related Research:
--'U.S. RMBS Loan Loss Model Criteria' (Aug. 10, 2012);
--'U.S. RMBS Surveillance Criteria' (Aug. 10, 2012);
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'U.S. Residential Mortgage Re-REMIC Criteria' (Aug. 10, 2012);
--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 18, 2011);
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012).
Applicable Criteria and Related Research: 'U.S. RMBS Rating Actions for August 17, 2012
U.S. RMBS Surveillance Criteria
U.S. RMBS Loan Loss Model Criteria
Counterparty Criteria for Structured Finance Transactions
Structured Finance Recovery Estimates for Distressed Securities
U.S. Residential Mortgage Re-REMIC Criteria
Global Structured Finance Rating Criteria
Primary Performance Analyst
Susan Hosterman, +1-212-908-0670
Fitch Inc., One State Street Plaza, New York, NY 10004
Grant Bailey, +1-212-908-0554
Sandro Scenga, New York, +1-212-908-0278