$8.0 billion of securities affected
New York, May 30, 2012 -- Moody's Investors Service (Moody's) has placed ratings on 216 tranches
on review for upgrade and ratings on 176 tranches on review for downgrade
from 134 residential mortgage-backed securities (RMBS) transactions
backed by prime jumbo loans securitized between 2005 and 2008.
Moody's rates a total of 4716 tranches from 349 prime jumbo RMBS
transactions issued from 2005-08.
RATINGS RATIONALE
The actions reflect the recent performance of individual prime jumbo transactions
and Moody's updated loss expectations on these pools. Today's rating
actions include placing on review ratings on 216 bonds for upgrade and
176 bonds for downgrade. The upgrade reviews are due to faster-than-expected
pay-down on certain bonds owing to prepayments and/or improvement
in collateral performance. The downgrade reviews are primarily
due to deteriorating collateral performance.
Although individual transaction performance varies, the overall
performance of prime jumbo RMBS remains weak. Average 60-plus
delinquencies of prime jumbo loans have increased to 14% of outstanding
balance currently from 12% a year earlier. The annual rate
of new delinquencies among always-current loans at 5% currently,
is down from its peak level of 9% in 2009, but has seen little
improvement over the past year. However, due to low mortgage
interest rates, voluntary prepayment rates on prime jumbo loans
continue to be high, averaging 15% over the past year.
As a result, in some transactions, certain bonds with payment
priority have paid down faster than Moody's had previously projected,
resulting in the upgrade reviews.
Moody's is placing on review for downgrade ratings of prime jumbo
RMBS with underlying pool performance weaker than previous expectations
or with credit enhancement lower than prior projections.
The methodologies used in these ratings were "Moody's Approach to Rating
US Residential Mortgage-Backed Securities" published in December
2008, and "2005 -- 2008 US RMBS Surveillance Methodology"
published in July 2011. The methodology used in rating interest-only
securities was "Moody's Approach to Rating Structured Finance
Interest-Only Securities" published in February 2012.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Moody's adjusts the methodologies noted above for 1) Moody's
current view on loan modifications 2) small pool volatility and 3) bonds
that financial guarantors insure.
Loan Modifications
As a result of an extension of the Home Affordable Modification Program
(HAMP) to 2013 and an increased use of private modifications, Moody's
is extending its previous view that loan modifications will only occur
through the end of 2012. It is now assuming that the loan modifications
will continue at current levels until the end of 2013.
Small Pool Volatility
The above RMBS approach only applies to structures with at least 40 loans
and pool factor of greater than 5%. Moody's can withdraw
its rating when the pool factor drops below 5% and the number of
loans in the deal declines to 40 loans or lower. If, however,
a transaction has a specific structural feature, such as a credit
enhancement floor, that mitigates the risks of small pool size,
Moody's can choose to continue to rate the transaction. Please
refer further to Moody's Investors Service's Withdrawal Policy,
which can be found on our website, www.moodys.com.
For pools with loans less than 100, Moody's adjusts its projections
of loss to account for the higher loss volatility of such pools.
For small pools, a few loans becoming delinquent would greatly increase
the pools' delinquency rate.
To project losses on prime jumbo pools with fewer than 100 loans,
Moody's first calculates an annualized delinquency rate based on vintage,
number of loans remaining in the pool and the level of current delinquencies
in the pool. For prime jumbo pools, Moody's first applies
a baseline delinquency rate of 3.5% for 2005, 6.5%
for 2006 and 7.5% for 2007. Once the loan count in
a pool falls below 76, this rate of delinquency is increased by
1% for every loan fewer than 76. For example, for
a 2005 pool with 75 loans, the adjusted rate of new delinquency
is 3.54%. Further, to account for the actual
rate of delinquencies in a small pool, Moody's multiplies
the rate calculated above by a factor ranging from 0.20 to 2.0
for current delinquencies that range from less than 2.5%
to greater than 50% respectively. Moody's then uses
this final adjusted rate of new delinquency to project delinquencies and
losses for the remaining life of the pool under the approach described
in the methodology publication.
Bonds insured by financial guarantors
The credit quality of RMBS that a financial guarantor insures reflect
the higher of the credit quality of the guarantor or the RMBS without
the benefit of the guarantee. As a result, the rating on
the security is the higher of 1) the guarantor's financial strength rating
and 2) the current underlying rating, which is what the rating of
the security would be absent consideration of the guaranty. The
principal methodology Moody's uses in determining the underlying
rating is the same methodology for rating securities that do not have
financial guaranty, described earlier.
To determine tranches to place on review, Moody's compared the model-implied
assessments to the current rating. To determine the model-implied
assessments, Moody's applied the methodologies described above
to all the transactions and their associated tranches through an automated
process. Moody's is placing tranches on review that have
model-implied assessments that differ significantly from their
current ratings. In certain cases, Moody's performed
additional analysis to confirm the review.
Over the coming weeks, Moody's will perform individual detailed
transaction-specific analysis and conclude the review on these
tranches. When assigning the final ratings to bonds, in addition
to the approach described above, Moody's will consider the
volatility of the projected losses and timeline of the expected defaults.
The primary source of assumption uncertainty is the uncertainty in our
central macroeconomic forecast and performance volatility due to servicer-related
issues. The unemployment rate fell from 9.0% in April
2011 to 8.1% in April 2012. Moody's forecasts
a further drop to 7.8% for 2013. Moody's expects
house prices to drop another 1% from their 4Q2011 levels before
gradually rising towards the end of 2013. Performance of RMBS continues
to remain highly dependent on servicer procedures. Any change resulting
from servicing transfers or other policy or regulatory change can impact
the performance of these transactions.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF286084
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Person approving the credit rating
For more information please see www.moodys.com.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Gregory Bessermann
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Deepika Kothari
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Takes Action on 2005-08 US Prime Jumbo RMBS: $2.2B on Review for Upgrade and $5.8B on Review for Downgrade
