NEW YORK - (Business Wire) Fitch Ratings has taken various rating actions on 62 U.S. subprime fixed-rate second lien and 13 U.S. variable-rate Home Equity Line of Credit (HELOC) residential mortgage-backed securities (RMBS) transactions. A spreadsheet detailing Fitch's rating actions on the transactions reviewed can be found at 'www.fitchratings.com' by performing a title search for 'Second Lien Rating Actions for November 2, 2009', and a summary of the mortgage pool and bond analysis can be found by performing a title search for 'RMBS Loss Metrics.'
Declines in home prices since the date of loan origination have resulted in negative home equity for most second-lien and HELOC borrowers and have prevented sustained improvement in the monthly roll-rates from performing to delinquency. The monthly rate of new delinquency remains elevated at approximately the same level as one year ago and rose in the month of September.
For second lien and HELOC pools, Fitch uses historical roll-rate behavior to project future defaults. Fitch assumes 100% loss severity on defaulted loans. Fitch's cash flow assumptions are described in the report 'Updated Surveillance Criteria For U.S. Subprime RMBS' published on Nov. 19, 2008.
Fitch's average projected mortgage pool loss assumptions as a percentage of the initial pool balance are as follows:
Subprime Fixed-Rate Closed-End Second Lien Transactions
--Vintages prior to 2005: 2%;
--2005 vintage: 26%;
--2006 vintage: 57%;
--2007 vintage: 65%.
Variable-Rate HELOC Transactions
--Vintages prior to 2005: 2%;
--2005 vintage: 12%;
--2006 vintage: 15%.
The weaker performance of the closed-end second lien transactions relative to the HELOC transactions can be explained by the credit profile of the borrowers. The closed-end second mortgage pools reviewed generally had initial weighted average credit scores between 640 and 700, while the HELOC mortgage pools generally had weighted average credit scores above 700. Additionally, the initial weighted average combined loan-to-value of the closed-end second mortgage pools reviewed was generally close to 100%, while the HELOC mortgage pools reviewed generally had weighted average combined loan-to-values of approximately 85%.
Prior to the start of national home price declines in the middle of 2006, closed-end second lien transactions benefited from rapid voluntary prepayments which helped to protect senior classes of transactions issued prior to 2006 through principal distribution and credit enhancement deleveraging. Of the 100 Fitch-rated senior classes issued prior to 2006, 67 have paid in full and only three are expected to default. In comparison, of the 61 Fitch-rates senior classes issued in 2006 and 2007, only 12 have paid in full, and 41 have defaulted or are expected to default in the future. Only one HELOC senior class is expected to default.
For classes which have defaulted or are expected to default in the future, Fitch assigns a Recovery Rating in addition to the bond's long-term credit rating. The majority of the senior classes expected to default were assigned an 'RR4' or an 'RR5', reflecting a projected discounted cashflow recovery of less than 50% of the current face amount on average. The methodology used to assign Recovery Ratings is described in Fitch's Aug. 17 report, 'Criteria for Structured Finance Recovery Ratings'.
Additional details are available in the following research, also available at 'www.fitchratings.com':
--'Global Structured Finance Rating Criteria' (Sept. 30, 2009).
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings, New York
Tara Sweeney, +1-212-908-0347
Vince Barberio, +1-212-908-0505
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com
