Approximately $5.88 billion of asset-backed securities affected
NOTE: On May 8, 2020, the press release was corrected as follows: the List of Affected Credit Ratings accessible via hyperlink from this press release was corrected to change the Releasing Office information for lead analyst Siddharth Lal to Toronto - Moody's Canada Inc., and the third, fourth, ninth, and tenth paragraphs were added to the Regulatory Disclosures section. Revised release follows.
New York, April 15, 2020 -- Moody's Investors Service, ("Moody's") has
placed the ratings of 356 classes from 240 RMBS transactions issued between
1999 and 2007 on review for downgrade. In addition, Moody's
has downgraded and placed on review for further downgrade the ratings
of 48 classes from 46 RMBS transactions. These bonds have a weak
interest recoupment mechanism that subordinates the reimbursement of unpaid
interest. The transactions are backed by subprime, Alt-A,
and scratch and dent mortgages.
Rating actions:
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL422631
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 under a baseline and stressed scenarios. In
addition, today's downgrade of certain bond ratings to Baa3
(sf) is due to the sensitivity of the ratings to even a single period
of missed interest payment, and these bonds remain on review for
further downgrade pending additional assessment of the magnitude and likelihood
of potential interest shortfalls.
The bonds placed on review have a 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 a weak interest recoupment mechanism is reimbursed
from the excess interest often only after the overcollateralization has
built to a pre-specified target amount. In transactions
whose 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 of this occurring in the current
environment is significantly elevated.
Because of the advancing mechanism included 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 servicers to offer 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, the loans of 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 12 months of monthly payments for each
delinquent borrower.
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 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 these ratings was "US RMBS Surveillance
Methodology" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1127300.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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 rise to about 9% in the second quarter,
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_ARFTL422631
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 2003-A, New Century Home Equity Loan Trust, Series 2004-2, New Century Home Equity Loan Trust, Series 2004-3, New Century Home Equity Loan Trust, Series 2005-2, New Century Home Equity Loan Trust 2005-3, New Century Home Equity Loan Trust 2005-4, Saxon Asset Securities Trust 1999-3, Morgan Stanley ABS Capital I Trust 2000-1, Morgan Stanley Dean Witter Capital I Inc. Trust 2002-NC3, Morgan Stanley Dean Witter Capital I Inc. Trust 2002-NC4, Morgan Stanley ABS Capital I Inc. 2002-NC6, Morgan Stanley Dean Witter Capital I Inc. Trust 2003-NC1, Morgan Stanley ABS Capital I Inc. Trust 2003-NC5, Morgan Stanley ABS Capital I Inc. Trust 2003-HE2, Morgan Stanley ABS Capital I Inc. Trust 2003-NC10, Morgan Stanley ABS Capital I Inc. Trust 2004-NC2, Saxon Asset Securities Trust 2004-1, Morgan Stanley ABS Capital I Inc. Trust 2004-NC3, Morgan Stanley ABS Capital I Inc. Trust 2004-NC4, Morgan Stanley ABS Capital I Inc. Trust 2004-HE4, Morgan Stanley ABS Capital I Inc. Trust 2004-WMC2, Morgan Stanley ABS Capital I Inc. Trust 2004-NC6, Saxon Asset Securities Trust 2004-2, Morgan Stanley ABS Capital I Inc. Trust 2004-NC7, Morgan Stanley ABS Capital I Inc. Trust 2004-HE7, Morgan Stanley ABS Capital I Inc. Trust 2004-HE6, Morgan Stanley ABS Capital I Inc. Trust 2004-HE8, Morgan Stanley ABS Capital I Inc. Trust 2004-NC8, Morgan Stanley ABS Capital I Inc. Trust 2005-HE1, Saxon Asset Securities Trust 2004-3, Morgan Stanley ABS Capital I Inc. Trust 2005-NC1, Morgan Stanley ABS Capital I Inc. Trust 2005-HE2, Morgan Stanley ABS Capital I Inc. Trust 2005-NC2, Saxon Asset Securities Trust 2005-1, Saxon Asset Securities Trust 2005-3, Morgan Stanley ABS Capital I Inc. Trust 2005-HE5, SG Mortgage Securities Trust 2005-OPT1, Morgan Stanley ABS Capital I Inc. Trust 2006-NC1, Saxon Asset Securities Trust 2006-2 and Saxon Asset Securities Trust 2006-3.
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.
The ratings for Saxon Asset Securities Trust 1999-3, Morgan Stanley ABS Capital I Trust 2000-1, Morgan Stanley Dean Witter Capital I Inc. Trust 2002-NC3, Morgan Stanley Dean Witter Capital I Inc. Trust 2002-NC4, Morgan Stanley ABS Capital I Inc. 2002-NC6, Morgan Stanley Dean Witter Capital I Inc. Trust 2003-NC1, Morgan Stanley ABS Capital I Inc. Trust 2003-NC5, Morgan Stanley ABS Capital I Inc. Trust 2003-HE2, Morgan Stanley ABS Capital I Inc. Trust 2003-NC10, Morgan Stanley ABS Capital I Inc. Trust 2004-NC2, Saxon Asset Securities Trust 2004-1, Morgan Stanley ABS Capital I Inc. Trust 2004-NC3, Morgan Stanley ABS Capital I Inc. Trust 2004-NC4, Morgan Stanley ABS Capital I Inc. Trust 2004-HE4, Morgan Stanley ABS Capital I Inc. Trust 2004-WMC2, Morgan Stanley ABS Capital I Inc. Trust 2004-NC6, Saxon Asset Securities Trust 2004-2, Morgan Stanley ABS Capital I Inc. Trust 2004-NC7, Morgan Stanley ABS Capital I Inc. Trust 2004-HE7, Morgan Stanley ABS Capital I Inc. Trust 2004-HE6, Morgan Stanley ABS Capital I Inc. Trust 2004-HE8, Morgan Stanley ABS Capital I Inc. Trust 2004-NC8, Morgan Stanley ABS Capital I Inc. Trust 2005-HE1, Saxon Asset Securities Trust 2004-3, Morgan Stanley ABS Capital I Inc. Trust 2005-NC1, Morgan Stanley ABS Capital I Inc. Trust 2005-HE2, Morgan Stanley ABS Capital I Inc. Trust 2005-NC2, Saxon Asset Securities Trust 2005-1, Saxon Asset Securities Trust 2005-3, Morgan Stanley ABS Capital I Inc. Trust 2005-HE5, SG Mortgage Securities Trust 2005-OPT1, Morgan Stanley ABS Capital I Inc. Trust 2006-NC1, Saxon Asset Securities Trust 2006-2 and Saxon Asset Securities Trust 2006-3 have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.
Moody’s attempted but was not able to disclose the draft rating action press release to New Century Home Equity Loan Trust, Series 2003-A, New Century Home Equity Loan Trust, Series 2004-2, New Century Home Equity Loan Trust, Series 2004-3, New Century Home Equity Loan Trust, Series 2005-2, New Century Home Equity Loan Trust 2005-3 and New Century Home Equity Loan Trust 2005-4 or their designated agent(s). The rating action press release was issued with no amendment.
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 ESG consideration was material to the credit rating outcome 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.
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.
Zhiyu Jiang
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
