New York, March 13, 2012 -- Moody's Investors Service has upgraded five tranches, downgraded
36 tranches, and confirmed the ratings on 17 tranches from four
RMBS transactions issued by Bear Stearns ARM Trust. The collateral
backing these deals primarily consists of first-lien, fixed
and adjustable-rate Jumbo residential mortgages. The actions
impact approximately $518.2 million of RMBS issued in 2003
and 2004.
Complete rating actions are as follows:
Issuer: Bear Stearns ARM Trust 2003-7
Cl. I-A, Confirmed at Aa3 (sf); previously on
Dec 22, 2011 Aa3 (sf) Placed Under Review Direction Uncertain
Cl. II-A, Downgraded to Baa2 (sf); previously
on Dec 22, 2011 Baa1 (sf) Placed Under Review Direction Uncertain
Cl. III-A, Confirmed at A2 (sf); previously on
Dec 22, 2011 A2 (sf) Placed Under Review Direction Uncertain
Cl. IV-AM, Downgraded to A3 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review Direction Uncertain
Cl. V-A, Confirmed at A3 (sf); previously on
Dec 22, 2011 A3 (sf) Placed Under Review Direction Uncertain
Cl. VI-A, Confirmed at A2 (sf); previously on
Dec 22, 2011 A2 (sf) Placed Under Review Direction Uncertain
Cl. VII-A, Confirmed at A2 (sf); previously on
Dec 22, 2011 A2 (sf) Placed Under Review Direction Uncertain
Cl. VIII-A, Confirmed at A2 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review Direction Uncertain
Cl. IX-A, Downgraded to Baa1 (sf); previously
on Dec 22, 2011 A3 (sf) Placed Under Review Direction Uncertain
Cl. B-1, Downgraded to B1 (sf); previously on
Dec 22, 2011 Ba3 (sf) Placed Under Review Direction Uncertain
Cl. B-2, Downgraded to Ca (sf); previously on
May 6, 2011 Downgraded to Caa3 (sf)
Issuer: Bear Stearns ARM Trust 2003-8
Cl. I-A-1, Confirmed at Baa3 (sf); previously
on Dec 22, 2011 Baa3 (sf) Placed Under Review Direction Uncertain
Cl. I-A-2, Confirmed at Ba1 (sf); previously
on Dec 22, 2011 Ba1 (sf) Placed Under Review Direction Uncertain
Cl. II-A-1, Confirmed at Baa3 (sf); previously
on Dec 22, 2011 Baa3 (sf) Placed Under Review Direction Uncertain
Cl. II-A-2, Confirmed at Ba1 (sf); previously
on Dec 22, 2011 Ba1 (sf) Placed Under Review Direction Uncertain
Cl. III-A, Confirmed at Baa3 (sf); previously
on Dec 22, 2011 Baa3 (sf) Placed Under Review Direction Uncertain
Cl. IV-A-1, Upgraded to Baa1 (sf); previously
on Jan 31, 2012 Baa3 (sf) Placed Under Review for Possible Upgrade
Cl. IV-A-2, Upgraded to Baa3 (sf); previously
on Dec 22, 2011 Ba1 (sf) Placed Under Review Direction Uncertain
Cl. V-A, Confirmed at Baa2 (sf); previously on
Dec 22, 2011 Baa2 (sf) Placed Under Review Direction Uncertain
Cl. B-1, Confirmed at Caa2 (sf); previously on
Dec 22, 2011 Caa2 (sf) Placed Under Review Direction Uncertain
Cl. B-2, Downgraded to C (sf); previously on
Dec 22, 2011 Ca (sf) Placed Under Review for Possible Downgrade
Issuer: Bear Stearns ARM Trust 2003-9
Cl. I-A-1, Confirmed at Baa1 (sf); previously
on Dec 22, 2011 Baa1 (sf) Placed Under Review for Possible Upgrade
Cl. I-A-2, Confirmed at Baa1 (sf); previously
on Dec 22, 2011 Baa1 (sf) Placed Under Review for Possible Upgrade
Cl. I-A-3, Confirmed at Baa1 (sf); previously
on Dec 22, 2011 Baa1 (sf) Placed Under Review for Possible Upgrade
Cl. II-A-1, Downgraded to A3 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review for Possible Upgrade
Cl. II-A-2, Downgraded to A3 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review for Possible Upgrade
Cl. II-A-3, Downgraded to A3 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review for Possible Upgrade
Cl. III-A-1, Upgraded to A1 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review for Possible Upgrade
Cl. III-A-2, Upgraded to A1 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review for Possible Upgrade
Cl. III-A-3, Upgraded to A1 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review for Possible Upgrade
Cl. IV-A-1, Confirmed at A2 (sf); previously
on Dec 22, 2011 A2 (sf) Placed Under Review for Possible Upgrade
Cl. B-1, Downgraded to B1 (sf); previously on
Dec 22, 2011 Ba3 (sf) Placed Under Review for Possible Upgrade
Cl. B-2, Downgraded to C (sf); previously on
May 6, 2011 Downgraded to Ca (sf)
Issuer: Bear Stearns ARM Trust 2004-1
Cl. I-1-A-1, Downgraded to Caa2 (sf);
previously on May 6, 2011 Downgraded to B1 (sf)
Cl. I-1-A-2, Downgraded to Caa2 (sf);
previously on May 6, 2011 Downgraded to B1 (sf)
Cl. I-1-A-3, Downgraded to Caa2 (sf);
previously on May 6, 2011 Downgraded to B1 (sf)
Cl. I-2-A-1, Downgraded to B2 (sf);
previously on May 6, 2011 Downgraded to Ba2 (sf)
Cl. I-2-A-2, Downgraded to B2 (sf);
previously on May 6, 2011 Downgraded to Ba2 (sf)
Cl. I-2-A-3, Downgraded to B2 (sf);
previously on May 6, 2011 Downgraded to Ba2 (sf)
Cl. I-2-A-4A, Downgraded to B1 (sf);
previously on Jan 31, 2012 Ba1 (sf) Placed Under Review for Possible
Downgrade
Cl. I-2-A-4M, Downgraded to Caa2 (sf);
previously on Dec 22, 2011 B1 (sf) Placed Under Review Direction
Uncertain
Cl. I-2-A-5, Downgraded to B2 (sf);
previously on May 6, 2011 Downgraded to Ba2 (sf)
Cl. I-3-A-1, Downgraded to B2 (sf);
previously on May 6, 2011 Downgraded to Ba3 (sf)
Cl. I-3-A-2, Downgraded to B2 (sf);
previously on May 6, 2011 Downgraded to Ba3 (sf)
Cl. I-3-A-3, Downgraded to B2 (sf);
previously on May 6, 2011 Downgraded to Ba3 (sf)
Cl. I-4-A-1, Downgraded to Caa2 (sf);
previously on Jan 31, 2012 Ba3 (sf) Placed Under Review for Possible
Downgrade
Cl. I-4-A-2, Downgraded to Caa2 (sf);
previously on Jan 31, 2012 Ba3 (sf) Placed Under Review for Possible
Downgrade
Cl. I-5-A-1, Downgraded to Caa2 (sf);
previously on May 6, 2011 Downgraded to B1 (sf)
Cl. I-5-A-2, Downgraded to Caa2 (sf);
previously on May 6, 2011 Downgraded to B1 (sf)
Cl. I-5-A-3, Downgraded to Caa2 (sf);
previously on May 6, 2011 Downgraded to B1 (sf)
Cl. I-6-A-1, Downgraded to Caa1 (sf);
previously on Dec 22, 2011 Ba3 (sf) Placed Under Review Direction
Uncertain
Cl. I-7-A-1, Downgraded to B1 (sf);
previously on Jan 31, 2012 Ba1 (sf) Placed Under Review for Possible
Downgrade
Cl. II-1-A-1, Downgraded to Ba3 (sf);
previously on Jan 31, 2012 Baa3 (sf) Placed Under Review for Possible
Downgrade
Cl. II-2-A-1, Downgraded to Ba3 (sf);
previously on Jan 31, 2012 Baa3 (sf) Placed Under Review for Possible
Downgrade
Cl. II-3-A-1, Downgraded to Ba2 (sf);
previously on Jan 31, 2012 Baa2 (sf) Placed Under Review for Possible
Downgrade
Cl. I-B-1, Downgraded to C (sf); previously
on Dec 22, 2011 Ca (sf) Placed Under Review for Possible Downgrade
Cl. II-B-1, Downgraded to Caa3 (sf); previously
on Jan 31, 2012 B3 (sf) Placed Under Review for Possible Downgrade
Cl. II-B-2, Downgraded to C (sf); previously
on May 6, 2011 Downgraded to Ca (sf)
RATINGS RATIONALE
These actions correct an error in the Structured Finance Workstation cash
flow model used by Moody's in rating these transactions, specifically
in how the model handled cash distribution from prepayments between senior
and subordinate certificates. When rating these deals, the
error in the model led to some senior certificates not being credited
with the appropriate amount of principal prepayments.In transactions
involving multiple loan pools the cash flow modeling was conservative
in determining when some performance triggers would send 100% of
prepayments to the senior certificates in deals. It should be noted
that model-generated output is but one factor considered by Moody's
in rating these transactions.
Moody's also assessed deal performance to date and applied its recently
updated "Pre-2005 US RMBS Surveillance Methodology"
published in January 2012, which also impacted the final rating
actions. Therefore, certain of the rating of the rating downgrades
announced today can be attributed to specific deal performance deteterioration.
RMBS structures initially allocate cash collections from voluntary prepayments
only to the senior certificates. Gradually over time, a portion
is then allocated to junior certificates. The amount of cash that
senior certificates receive from prepayments starts off at 100%.
After a certain number of months, that percentage starts decreasing
according to a deal-specific schedule as long as certain conditions
are met. However, the share of prepayments to the senior
certificates can revert back to 100% at any distribution date if
certain performance triggers are breached.
One performance trigger measures whether the current credit protection,
expressed as a percentage, to senior bonds from subordination is
greater than the percentage of original credit protection. Should
the deal perform poorly and absorb losses on the underlying collateral
and available credit protection falls below the original level,
then 100% of prepayment cash reverts back to the senior certificates.
In cases where a deal has two or more loan pools, the calculation
for this performance trigger can be done in one of three ways.
1. "Aggregate level credit protection" Approach: When the
percentage of credit protection available for all senior certificates,
in aggregate, falls below the original percentage of credit protection,
then the prepayment share to all the senior certificates groups reverts
back to 100%.
2. "Individual group trigger" Approach: When the percentage
of credit protection available for a group of senior certificates falls
below the original percentage of group credit protection, then the
prepayment share to the senior certificates of that particular group reverts
back to 100%. All other senior certificates' share of prepayment
remains unchanged.
3. "Combined" Approach: This is a combination of the above
two approaches. When the percentage of credit protection available
for a senior certificates' group falls below the original percentage of
credit protection, then the prepayment share to all senior certificates
from all groups reverts back to 100%.
The following transactions included in these rating actions follow the
"individual group trigger" approach when calculating performance
triggers:
BEAR STEARNS ARM TRUST 2003-7
BEAR STEARNS ARM TRUST 2003-8
BEAR STEARNS ARM TRUST 2003-9
BEAR STEARNS ARM TRUST 2004-1
This trigger helps protect senior certificates if credit protection is
eroding by reducing principal payments to junior certificates and diverting
them to pay the senior certificates instead. While all three approaches
described above benefit senior certificates, the third approach
benefits senior certificates the most, while the first approach
benefits senior certificates the least. The third approach redirects
payments to the senior certificates sooner than the other two approaches.
For example, consider a deal backed by two distinct pools of mortgages
(pool A and pool B) and over time there is a vast difference in performance
of two underlying pools. Pool A performs much stronger, with
lower losses, while pool B performs much weaker. As per approach
1, the average loss, when pool A and B are combined,
will be medium and hence current combined credit protection may be higher
than the original credit protection. As a result, payments
will not be diverted to the senior certificates. In contrast,
approach 3 will test pool A and pool B individually instead of taking
the average of the two pools. Since pool B is performing weaker,
current credit protection may be lower than the original credit protection.
As a result, it will divert payments to the senior certificates
backed by both pools A and B. Approach 2 will only revert payments
back to senior certificates backed by pool B, so it is beneficial
for only one group.
The Pooling and Servicing Agreements for the deals impacted by this rating
action require the use of the "combined" and "individual
group trigger" approaches as noted above. As Moody's
explained when these bonds were placed on review, previous rating
actions on these deals mistakenly used the "aggregate level credit protection"
approach in their modeling. Under this approach, prepayment
allocation to senior certificates was changed back to 100% only
when all groups failed the test, with the result that senior certificates
received too little credit for prepayments while junior certificates received
too much. As a result the pay-down rate of the senior certificates
was slower than it should have been, while the reverse was true
for the junior certificates. The cash flow models have been corrected
to reflect the application of the appropriate approach required in the
deals. In resolving the review actions Moody's has taken
into account the corrected models as well as the performance of the impacted
transactions.
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.
The above mentioned approach is also 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 pools with fewer than 100 loans, Moody's first estimates a "baseline"
average rate of new delinquencies for the pool that varies from 3%
to 10% on average. The baseline rates are higher than the
average rate of new delinquencies for larger pools for the respective
vintages.
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 volatility of pool performance increases
as the number of loans remaining in the pool decreases. 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 with a base rate of new delinquency of 3.00%,
the adjusted rate of new delinquency would be 3.03%.
In addition, if current delinquency levels 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 0.75 to 2.5 for current delinquencies ranging from
less than 2.5% to greater than 10% respectively.
Delinquencies for subsequent years and ultimate expected losses are projected
using the approach described in the "Pre-2005 US RMBS Surveillance
Methodology" publication.
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 2012, with a 3% remaining
decline in 2012, and unemployment rate to start declining,
albeit slowly, as the year progresses.
A list of these actions including CUSIP identifiers may be found at:
Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF278468
A list of updated estimated pool losses and sensitivity analysis is being
posted on an ongoing basis for the duration of this review period and
may be found at:
Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF243269
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.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and
confidential and proprietary Moody's Analytics information.
Moody's received and took into account one or more third-party
assessments on the due diligence performed regarding the underlying assets
or financial instruments in these transactions and the assessments had
a neutral impact on the rating.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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.
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.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
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.
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.
Max Sauray
Associate 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
Deepika Kothari
Vice President - Senior Analyst
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 takes action on $518.2 million of Jumbo RMBS issued in 2003 and 2004
