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Rating Action:

Moody's places 13 classes of legacy US RMBS on review for downgrade

21 Apr 2020

Approximately $242 million of asset-backed securities affected

New York, April 21, 2020 -- Moody's Investors Service, ("Moody's") has placed the ratings of 12 classes from seven RMBS transactions issued between 2003 and 2006 on review for downgrade. In addition, Moody's has downgraded and placed on review for further downgrade, the rating of one class from one RMBS transaction. These bonds have a weak interest recoupment mechanism that subordinates the reimbursement of unpaid interest. The transactions are backed by subprime and Alt-A mortgages.

Rating actions:

Issuer: Centex Home Equity Loan Trust 2005-D

Cl. M-3, Baa3 (sf) Placed Under Review for Possible Downgrade; previously on Mar 19, 2018 Upgraded to Baa3 (sf)

Cl. M-4, Ba1 (sf) Placed Under Review for Possible Downgrade; previously on Mar 19, 2018 Upgraded to Ba1 (sf)

Cl. M-5, Ba3 (sf) Placed Under Review for Possible Downgrade; previously on Mar 19, 2018 Upgraded to Ba3 (sf)

Issuer: Citigroup Mortgage Loan Trust, Series 2005-WF2

Cl. MV-3, Ba2 (sf) Placed Under Review for Possible Downgrade; previously on Apr 15, 2016 Upgraded to Ba2 (sf)

Issuer: Accredited Mortgage Loan Trust 2005-4

Cl. A-2D, Downgraded to Baa3 (sf) and Placed Under Review for Possible Downgrade; previously on May 16, 2016 Upgraded to Baa2 (sf)

Issuer: Accredited Mortgage Loan Trust 2006-2

Cl. A-4, Ba2 (sf) Placed Under Review for Possible Downgrade; previously on Mar 6, 2017 Upgraded to Ba2 (sf)

Issuer: Bear Stearns Asset-Backed Securities Trust 2003-AC6

Cl. A-1, Ba1 (sf) Placed Under Review for Possible Downgrade; previously on Jun 29, 2015 Upgraded to Ba1 (sf)

Cl. A-2, Baa3 (sf) Placed Under Review for Possible Downgrade; previously on Jun 29, 2015 Upgraded to Baa3 (sf)

Issuer: Bear Stearns Asset-Backed Securities Trust 2004-AC1

Cl. A-1, Baa2 (sf) Placed Under Review for Possible Downgrade; previously on Mar 24, 2011 Downgraded to Baa2 (sf)

Cl. A-2, Baa2 (sf) Placed Under Review for Possible Downgrade; previously on Mar 24, 2011 Downgraded to Baa2 (sf)

Cl. A-3*, Baa2 (sf) Placed Under Review for Possible Downgrade; previously on Mar 24, 2011 Downgraded to Baa2 (sf)

Issuer: New Century Home Equity Loan Trust, Series 2004-4

Cl. M-1, Ba1 (sf) Placed Under Review for Possible Downgrade; previously on Mar 18, 2011 Downgraded to Ba1 (sf)

Cl. M-2, Ba1 (sf) Placed Under Review for Possible Downgrade; previously on Apr 9, 2018 Upgraded to Ba1 (sf)

*Reflects Interest-Only Class

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL422989 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

The rating action reflects the heightened risk of interest loss in light of slowing US economic activity and increased unemployment due to the coronavirus outbreak. In its analysis, Moody's considered the sensitivity of the bonds' ratings to the magnitude of projected interest shortfalls in a baseline and stressed scenarios. In addition, today's downgrade of certain bond's rating to Baa3 (sf) is due to the sensitivity of the rating to even a single period of missed interest payment, and this bond remains on review for further downgrade pending additional assessment of the magnitude and likelihood of potential interest shortfalls.

The bonds placed under review have weak interest recoupment mechanism, which means that a missed interest payment will likely result in a permanent interest loss, negatively impacting their ratings. Unpaid interest owed to bonds with weak interest recoupment mechanisms is reimbursed from the excess interest often only after the overcollateralization has built to a pre-specified target amount. In transactions where overcollateralization has already been reduced or depleted due to poor performance, any such missed interest payments to these tranches is unlikely to be repaid. This risk is now significantly elevated in the current environment.

Due to the advancing mechanism prevalent in most RMBS transactions, interest shortfalls on bonds are generally related to recoupment of advances by the servicer. Common triggers for recoupment of advances are the servicer deeming the advances to be non-recoverable, modification, liquidation of a delinquent loan, or transfer of servicing. The severe disruption in borrower incomes due to the coronavirus outbreak has led to servicers offering borrower relief in the form of forbearance of mortgage payments, which the servicers advance to the trusts. Depending on the strength and timing of the economic recovery, many borrowers on such forbearance plans may eventually need to be modified, with servicers recouping their advances at the time of modification. The servicer is entitled to reimbursement from cash collected on all loans in the associated RMBS pool. The servicer's right to reimburse itself is senior to the claim of the bonds. Recoupment of advances for a large number of delinquent borrowers within a few months could result in a reduction in interest funds available to the bondholders, causing interest shortfalls that, in many cases, will be permanent once incurred. The magnitude of funds advanced, and subsequently recouped, could be in the range of three to twelve months of monthly payments for each delinquent borrower.

In today's rating action, certain bonds from Bear Stearns Asset-Backed Securities Trust 2003-AC6 and 2004-AC1 have been placed under review pending additional clarification regarding their interest reimbursement mechanism. The Pooling and Servicing Agreement (PSA) for these transactions is unclear with regards to the definition and recoupment of any unpaid interest from prior distribution dates. The interest waterfall section notes the payment of accrued and unpaid interest amounts to the certificates, however the term "unpaid interest" is not defined. In the Bear Stearns Asset-Backed Securities Trust 2004-AC1, prior interest shortfalls on the senior bonds have been reimbursed in subsequent periods, whereas in Bear Stearns Asset-Backed Securities Trust 2003-AC6, interest shortfalls on senior bonds remain unreimbursed, while mezzanine tranches continue to receive interest.

During the review period, Moody's will consider additional factors that impact the likelihood and magnitude of interest shortfalls such as updated performance information, and structural factors such as level of overcollateralization, excess cashflow available to cover shortfalls, prior payment pattern, and paydown on the bonds. The final ratings could range from low investment grade for bonds that are expected to incur only a very small interest loss even in a stressed scenario, to below investment grade for bonds that are expected to incur a permanent and material interest loss in an expected scenario.

Our analysis has considered the increased uncertainty relating to the effect of the coronavirus outbreak on the US economy as well as the effects of the announced government measures which were put in place to contain the virus. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. It is a global health shock, which makes it extremely difficult to provide an economic assessment. On March 25th, we revised our baseline growth forecast and now expect real GDP in the US to contract by 2.0% in 2020. The degree of uncertainty around our forecasts is unusually high.

PRINCIPAL METHODOLOGY

The principal methodology used in rating all classes except interest-only classes was "US RMBS Surveillance Methodology" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1127300. The methodologies used in rating interest-only classes were "US RMBS Surveillance Methodology" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1127300 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://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.

Factors that would lead to an upgrade or downgrade of the ratings:

Ratings in the US RMBS sector remain exposed to the high level of macroeconomic uncertainty, and in particular the unemployment rate. We expect unemployment rate to peak in the second quarter and to average anywhere between 8.8% and 16.2%, and decline thereafter with a slow pace of rehiring, resulting in an unemployment rate of around 6.5% by the end of 2020. However, there is significant uncertainty around this forecast and risks are firmly to the downside. House prices are another key driver of US RMBS performance. Lower increases than Moody's expects or decreases could lead to negative rating actions. 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.

For more information please see www.moodys.com.

REGULATORY DISCLOSURES

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_ARFTL422989 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:

Disclosure to Rated Entity

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.

Moody's either did not receive or take into account one or more third-party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action for New Century Home Equity Loan Trust, Series 2004-4.

The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

Moody's did not use any models, or loss or cash flow analysis, in its analysis.

Moody's did not use any stress scenario simulations in its analysis.

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.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The below contact information is provided for information purposes only. Please see 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 the ratings.

The relevant office for each credit rating is identified in "Debt/deal box" on the Ratings tab in the Debt/Deal List section of each issuer/entity page of the website.

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.

Nicholas Rossetti
Asst Vice President - 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

No Related Data.
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