New York, March 30, 2021 -- Moody's Investors Service, ("Moody's") has
downgraded the ratings of three bonds from two US residential mortgage
backed transactions (RMBS), WaMu Mortgage Pass-Through Certificates,
WMALT Series 2007-3 Trust backed by Alt-A loans, and
WaMu Mortgage Pass-Through Certificates Series 2004-RP1
Tr backed by FHA and VA loans. The ratings of the affected tranches
are sensitive to loan performance deterioration due to the pandemic.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL443404
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
This link also contains the associated underlying collateral losses.
Issuer: WaMu Mortgage Pass-Through Certificates, WMALT
Series 2007-3 Trust
Cl. X*, Downgraded to Ca (sf); previously on Feb
7, 2018 Confirmed at Caa3 (sf)
Issuer: WaMu Mortgage Pass-Through Certificates Series 2004-RP1
Tr
Cl. I-S*, Downgraded to Caa3 (sf); previously
on Nov 29, 2017 Downgraded to Caa2 (sf)
Cl. I-B-1, Downgraded to Caa2 (sf); previously
on Jul 25, 2016 Downgraded to Caa1 (sf)
*Reflects Interest Only Classes
RATINGS RATIONALE
The rating downgrades on the interest-only tranches reflects the
updated performance and increases in losses on the underlying bonds/collateral.
The rating downgrade on Cl. I-B-1 from WaMu Mortgage
Pass-Through Certificates Series 2004-RP1 Tr reflects the
erosion of credit enhancement available to the bond. Today's rating
actions also reflect the recent performance as well as Moody's updated
loss expectations on the underlying pools. In light of the current
macroeconomic environment, we revised loss expectations based on
the extent of performance deterioration of the underlying mortgage loans,
resulting from a slowdown in economic activity and increased unemployment
due to the coronavirus outbreak. Specifically, we have observed
an increase in delinquencies, payment forbearance, and payment
deferrals since the start of pandemic, which could result in higher
realized losses.
Our analysis of WMALT Series 2007-3 Trust considers the current
proportion of loans granted payment relief in each individual transaction.
We identified these loans based on a review of loan level cashflows over
the last few months. In cases where loan level data is not available,
we assumed that the proportion of borrowers enrolled in payment relief
programs would be equal to levels observed in transactions of comparable
asset quality. Based on our analysis, the proportion of borrowers
that are currently enrolled in payment relief plans varied greatly,
ranging between approximately 2% and 19% among RMBS transactions
issued before 2009. In our analysis, we assume these loans
to experience lifetime default rates that are 50% higher than default
rates on the performing loans.
In addition, for borrowers unable to make up missed payments through
a short-term repayment plan, servicers will generally defer
the forborne amount as a non-interest-bearing balance,
due at maturity of the loan as a balloon payment. Our analysis
considered the impact of six months of scheduled principal payments on
the loans enrolled in payment relief programs being passed to the trust
as a loss. The magnitude of this loss will depend on the proportion
of the borrowers in the pool subject to principal deferral and the number
of months of such deferral. The treatment of deferred principal
as a loss is credit negative, which could incur write-downs
on bonds when missed payments are deferred.
In response to the COVID-19 spurred economic shock, the Federal
Housing Administration (FHA) and the Department of Veterans Affairs (VA)
have enacted temporary policies that allow servicers to offer payment
forbearance to borrowers financially impacted by COVID-19.
In addition, the FHA and VA have loss mitigation options to assist
borrowers at the end of the forbearance period to help repay the missed
payments. In our analysis of WaMu 2004-RP1 transaction,
we increased our model-derived expected losses by approximately
10% to reflect the performance deterioration resulting from a slowdown
in US economic activity in 2020 due to the COVID-19 outbreak.
The coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond
the end of the year. While persistent virus fears remain the main
risk for a recovery in demand, the economy will recover faster if
vaccines and further fiscal and monetary policy responses bring forward
a normalization of activity. As a result, there is a heightened
degree of uncertainty around our forecasts. Our analysis has considered
the effect on the performance of residential mortgage loans from a gradual
and unbalanced recovery in US economic activity.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Principal Methodologies
The principal methodology used in rating WaMu Mortgage Pass-Through
Certificates Series 2004-RP1 Tr Cl. I-B-1
was FHA-VA US RMBS Surveillance Methodology published in July 2020
and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1231950.
The methodologies used in rating WaMu Mortgage Pass-Through Certificates,
WMALT Series 2007-3 Trust Cl. X were US RMBS Surveillance
Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1231951,
and Moody's Approach to Rating Structured Finance Interest-Only
(IO) Securities published in Feb 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179.
The methodologies used in rating WaMu Mortgage Pass-Through Certificates
Series 2004-RP1 Tr Cl. I-S were FHA-VA US
RMBS Surveillance Methodology published in July 2020 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1231950,
and Moody's Approach to Rating Structured Finance Interest-Only
(IO) Securities published in Feb 2019 and available athttps://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179.
Please see the list of ratings at the top of this announcement to identify
which classes are interest-only (indicated by the *).
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
In addition, Moody's publishes a weekly summary of structured finance
credit ratings and methodologies, available to all registered users
of our website, www.moodys.com/SFQuickCheck.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to protect
investors against current expectations of loss could drive the ratings
of the subordinate bonds up. Losses could decline from Moody's
original expectations as a result of a lower number of obligor defaults
or appreciation in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly
on the US macro economy and housing market.
Down
Levels of credit protection that are insufficient to protect investors
against current expectations of loss could drive the ratings down.
Losses could rise above Moody's expectations as a result of a higher number
of obligor defaults or deterioration in the value of the mortgaged property
securing an obligor's promise of payment. Transaction performance
also depends greatly on the US macro economy and housing market.
Other reasons for worse-than-expected performance include
poor servicing, error on the part of transaction parties,
inadequate transaction governance and fraud.
Finally, 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. In addition, improvements in reporting formats
and data availability across deals and trustees may provide better insight
into certain performance metrics such as the level of collateral modifications.
An IO bond may be upgraded or downgraded, within the constraints
and provisions of the IO methodology, based on lower or higher realized
and expected loss due to an overall improvement or decline in the credit
quality of the reference bonds.
For more information please see www.moodys.com
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL443404
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:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Cherie Zhang
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Soumya Vasudevan
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
