New York, June 09, 2020 -- Moody's Investors Service, ("Moody's") has
confirmed the ratings of 35 bonds and downgraded the ratings of 380 bonds
from 237 US residential mortgage backed transactions (RMBS), backed
by subprime, Alt-A, and scratch and dent mortgages
issued by multiple issuers. Majority of the bonds were amongst
those placed on review on April 15th and 21st due to heightened risk of
interest loss.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL425926
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
The link also contains the associated underlying collateral losses.
RATINGS RATIONALE
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL425926
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:
Principal Methodologies
Today's rating actions reflect the recent performance as well as
Moody's updated loss expectations on the underlying pools. The
rating downgrades are primarily due to the assessment of outstanding and
potential interest shortfalls, and also reflect the subordination
of recoupment of unpaid interest, erosion in credit enhancement
or sensitivity of the ratings to an increase in baseline loss of up to
10%.
The rating action resolves the review action for 371 bonds that were placed
on review on April 15th and April 21st, 2020 due to the heightened
risk of interest loss. These bonds have weak interest recoupment
mechanisms or weak interest promise where missed interest payments will
likely result in a permanent interest loss. In light of the slowdown
in US economic activity in 2020, and increased unemployment due
to the coronavirus outbreak, the risk of incurring such interest
loss is now significantly elevated.
In our liquidity analysis, we considered the resiliency of ratings
to interest losses arising from two and four months of missed interest
payments to the bonds, the subordination of the recoupment of such
missed interest in the distribution waterfall and any outstanding unrecovered
interest shortfalls as of April 2020 remittance.
Unpaid interest owed to bonds with weak interest recoupment mechanisms
is reimbursed sequentially based on bond priority, from excess interest,
if available, and 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 bonds
is unlikely to be repaid. In the case of bonds with weak interest
promise, the monthly interest payable on the bonds is limited by
the interest collections or available funds and thus could become zero
if collections in a specific period is not sufficient to make interest
payments on the bonds. In the transaction documents, such
missed interest is not treated as unpaid interest, and thus not
reflected as an interest shortfall despite the bonds not receiving any
interest for that period.
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 that could lead to a change in advancing practice.
The severe disruption in borrower incomes due to the coronavirus outbreak
has led servicers to offer borrower relief largely 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 the associated RMBS pool, and the right to reimburse
itself is senior to the claim of the bonds. Recoupment of advances
for a large number of 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 and will depend on servicer practices.
Our analysis has considered the effect of the coronavirus outbreak on
the US economy as well as the effects that the announced government measures,
put in place to contain the virus, will have on the performance
of consumer assets. Specifically, for US RMBS, loan
performance will weaken due to the unprecedented spike in the unemployment
rate, which may limit borrowers' income and their ability
to service debt. The softening of the housing market will reduce
recoveries on defaulted loans, also a credit negative. Furthermore,
borrower assistance programs such as forbearance, may adversely
impact scheduled cash flows to bondholders.
The contraction in economic activity in the second quarter will be severe
and the overall recovery in the second half of the year will be gradual.
However, there are significant downside risks to our forecasts in
the event that the pandemic is not contained and lockdowns have to be
reinstated. As a result, the degree of uncertainty around
our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
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 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 original 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.
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_ARFTL425926
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_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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.
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
