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Rating Action:

Moody's takes action on $5.4 million of FHA/VA RMBS issued by various issuers issued in 2002 and 2004

24 Jun 2014

New York, June 24, 2014 -- Moody's Investors Service has downgraded the ratings of four tranches from three transactions issued by various issuers. The collateral backing these deals consists of first-lien fixed and adjustable rate mortgage loans insured by the Federal Housing Administration (FHA) an agency of the U.S. Department of Urban Development (HUD) or guaranteed by the Veterans Administration (VA).

Complete rating actions are as follows:

Issuer: GSMPS Mortgage Loan Trust 2002-1

Cl. B2, Downgraded to Caa3 (sf); previously on Oct 24, 2013 Downgraded to Caa1 (sf)

Issuer: NAAC Reperforming Loan Remic Trust 2004-R3

Cl. M, Downgraded to Caa1 (sf); previously on Sep 26, 2013 Downgraded to B3 (sf)

Cl. B-1, Downgraded to C (sf); previously on Sep 6, 2011 Downgraded to Caa3 (sf)

Issuer: NAAC Reperforming Loan Remic Trust Certificates, Series 2004-R2

Cl. M, Downgraded to Caa2 (sf); previously on Sep 26, 2013 Downgraded to Caa1 (sf)

RATINGS RATIONALE

The rating actions are a result of the recent performance of FHA-VA portfolio and reflect Moody's updated loss expectations on these pools and the structural nuances of the transactions. The ratings downgraded are primarily due to the erosion of credit enhancement supporting some of these bonds and higher than expected losses. The current delinquent pipeline includes loans that have been in foreclosure for over four years. Moody's believes the severity on some of these loans could be significantly than the FHA-VA expected severity.

A FHA guarantee covers 100% of a loan's outstanding principal and a large portion of its outstanding interest and foreclosure-related expenses in the event that the loan defaults. A VA guarantee covers only a portion of the principal based on the lesser of either the sum of the current loan amount, accrued and unpaid interest, and foreclosure expenses, or the original loan amount. HUD usually pays claims on defaulted FHA loans when servicers submit the claims, but can impose significant penalties on servicers if it finds irregularities in the claim process later during the servicer audits. This can prompt servicers to push more expenses to the trust that they deem reasonably incurred than submit them to HUD and face significant penalty. The rating actions consider the portion of a defaulted loan normally not covered by the FHA or VA guarantee and other servicer expenses they deemed reasonably incurred and passed on to the trust.

The principal methodology used in these ratings was "FHA-VA US RMBS Methodology" published in November 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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

Ratings in the US RMBS sector remain exposed to the high level of macroeconomic uncertainty, and in particular the unemployment rate. The unemployment rate fell to 6.3% in May 2014 from 7.5% in May 2013 . Moody's forecasts an unemployment central range of 6.5% to 7.5% for the 2014 year. Deviations from this central scenario could lead to rating actions in the sector.

House prices are another key driver of US RMBS performance. Moody's expects house prices to continue to rise in 2014. 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.

A list of these actions including CUSIP identifiers may be found at:

Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF371686

A list of updated estimated pool losses may be found at:

Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF256626

For more information please see www.moodys.com.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

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 assessmentss had a neutral impact on the rating.

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.

As the section on loss and cash flow analysis describes, 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 or category/class of debt, this announcement provides certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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.

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.

Max Erick Sauray
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 takes action on $5.4 million of FHA/VA RMBS issued by various issuers issued in 2002 and 2004
No Related Data.
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