New York, January 31, 2012 -- Moody's Investors Service has placed 799 tranches on review for downgrade
and 381 tranches on review for upgrade from 520 RMBS transactions,
backed by subprime loans originated before 2005.
RATINGS RATIONALE
The actions are a result of the recent performance review of Subprime
pools and reflect Moody's updated loss expectations on subprime pools
originated before 2005.
The methodologies used in these ratings were "Moody's Approach to
Rating US Residential Mortgage-Backed Securities" published in
December 2008, and "Pre-2005 US RMBS Surveillance Methodology"
published in January 2012. Please see the Credit Policy page on
www.moodys.com for a copy of these methodologies.
To determine which tranches to place on review, Moody's compared
the model implied rating to the current rating. Tranches that showed
rating differences were placed on review. Over the coming months,
additional transaction specific analysis will be concluded.
The above mentioned approach "Pre-2005 US RMBS Surveillance Methodology"
is adjusted slightly when estimating losses on pools left with a small
number of loans to account for the volatile nature of small pools.
Even if a few loans in a small pool become delinquent, there could
be a large increase in the overall pool delinquency level due to the concentration
risk. To project losses on subprime pools with fewer than 100 loans,
Moody's first estimates a "baseline" average rate of new delinquencies
of 11%. The baseline rate is generally higher than the average
rate of new delinquencies for larger pools.
Once the baseline rate is set, further adjustments are made based
on 1) the number of loans remaining in the pool and 2) the level of current
delinquencies in the pool. The fewer the number of loans remaining
in the pool, the higher the volatility in performance. Once
the loan count in a pool falls below 75, the rate of delinquency
is increased by 1% for every loan less than 75. For example,
for a pool with 74 loans from the 2004 vintage, the adjusted rate
of new delinquency would be 11.11%. In addition,
if the current delinquency level in a small pool is low, future
delinquencies are expected to reflect this trend. To account for
that, the rate calculated above is multiplied by a factor ranging
from 0.85 to 2.25 for current delinquencies ranging from
less than 10% to greater than 50% respectively. Delinquencies
for subsequent years and ultimate expected losses are projected using
the approach described in the methodology publication.
The above methodology only applies to pools with at least 40 loans and
a pool factor of greater than 5%. Moody's may withdraw its
rating when the pool factor drops below 5% and the number of loans
in the pool declines to 40 loans or lower unless specific structural features
allow for a monitoring of the transaction (such as a credit enhancement
floor).
Certain securities are insured by financial guarantors. For securities
insured by a financial guarantor, the rating on the securities is
the higher of (i) the guarantor's financial strength rating and (ii) the
current underlying rating (i.e., absent consideration
of the guaranty) on the security. The principal methodology used
in determining the underlying rating is the same methodology for rating
securities that do not have a financial guaranty and is as described earlier.
The primary source of assumption uncertainty is the current macroeconomic
environment, in which unemployment levels remain high, and
weakness persists in the housing market. Moody's now projects house
price index to reach a bottom in early 2012, with a 3% remaining
decline in 2012, and unemployment rate to start declining,
albeit slowly, as the year progresses.
Moody's noted that on November 22, 2011, it released a Request
for Comment, in which the rating agency has requested market feedback
on potential changes to its rating methodology for Interest-Only
Securities. Please refer to Moody's request for Comment,
titled "Proposal Changing the Global Rating Methodology for Structured
Finance Interest-Only Securities," for further details regarding
the implications of the proposed methodology change on Moody's ratings.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology and the Request for Comment.
A list of the review actions associated with this announcement may be
found at:
Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF274905
For more information please see www.moodys.com.
REGULATORY DISCLOSURES
Although these credit ratings have been issued in a non-EU country
which has not been recognized as endorsable at this date, the credit
ratings are deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. 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
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating 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.
Mark Branton
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
Bruce D. Fabrikant
Senior Vice President
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 places $12B on review for downgrade and $6B on review for upgrade of Subprime RMBS issued prior to 2005
