New York, December 09, 2010 -- Moody's Investors Service has downgraded the ratings of seven tranches
and confirmed the ratings of seven tranches from two RMBS transactions
issued by Chevy Chase Funding LLC. The collateral backing these
transactions primarily consists of first-lien, adjustable-rate,
negative amortization residential mortgages.
RATINGS RATIONALE
The actions are a result of the rapidly deteriorating performance of option
arm pools in conjunction with macroeconomic conditions that remain under
duress. The actions reflect Moody's updated loss expectations on
option arm pools issued from 2005 to 2007.
The principal methodology used in these ratings was "Option ARM RMBS Loss
Projection Update: April 2010" published in April 2010.
To assess the rating implications of the updated loss levels on option
arm RMBS, each individual pool was run through a variety of scenarios
in the Structured Finance Workstation® (SFW), the cash flow
model developed by Moody's Wall Street Analytics. This individual
pool level analysis incorporates performance variances across the different
pools and the structural features of the transaction including priorities
of payment distribution among the different tranches, average life
of the tranches, current balances of the tranches and future cash
flows under expected and stressed scenarios. The scenarios include
ninety-six different combinations comprising of six loss levels,
four loss timing curves and four prepayment curves. The volatility
in losses experienced by a tranche due to small increments in losses on
the underlying mortgage pool is taken into consideration when assigning
ratings.
Certain securities, as noted below, are insured by financial
guarantors. The Cl. A-1, Cl. A-1I
and Cl. A-NA tranches, contained in both transactions
in this rating action, are wrapped by Ambac Assurance Corporation
(Segregated Account -- Unrated). For securities insured by
a financial guarantor, the rating on the securities is the higher
of (i) the guarantor's financial strength rating and (ii) the current
underlying rating (i.e., absent consideration of the
guaranty) on the security. The principal methodology used in determining
the underlying rating is the same methodology for rating securities that
do not have a financial guaranty and is as described earlier. RMBS
securities wrapped by Ambac Assurance Corporation are rated at their underlying
rating without consideration of Ambac's guaranty.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
The primary source of assumption uncertainty is the current macroeconomic
environment, in which unemployment remains at high levels,
and weakness persists in the housing market. Moody's notes an increasing
potential for a double-dip recession, which could cause a
further 20% decline in home prices (versus its baseline assumption
of roughly 5% further decline). Overall, Moody's assumes
a further 5% decline in home prices with stabilization in early
2011, accompanied by continued stress in national employment levels
through that timeframe.
For more information please see www.moodys.com.
Moody's Investors Service received and took into account one or
more third party due diligence reports on the underlying assets or financial
instruments in this transaction and the due diligence reports had a neutral
impact on the rating.
Complete rating actions are as follows:
Issuer: Chevy Chase Funding LLC, Mortgage-Backed Certificates,
Series 2007-1
Cl. A-1, Downgraded to Caa3 (sf); previously
on Jan 27, 2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: Ambac Assurance Corporation (Segregated Account
- Unrated)
Underlying Rating: Downgraded to Caa3 (sf); previously on Mar
30, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. A-1I, Downgraded to Caa3 (sf); previously
on Apr 16, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: Ambac Assurance Corporation (Segregated Account
- Unrated)
Underlying Rating: Downgraded to Caa3 (sf); previously on Mar
30, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. A-NA, Downgraded to Caa3 (sf); previously
on Apr 16, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: Ambac Assurance Corporation (Segregated Account
- Unrated)
Underlying Rating: Downgraded to Caa3 (sf); previously on Mar
30, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. A-2, Downgraded to Caa3 (sf); previously
on Jan 27, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. A-2I, Downgraded to Caa3 (sf); previously
on Jan 27, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. IO, Downgraded to Caa3 (sf); previously on Jan 27,
2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. NIO, Downgraded to Caa3 (sf); previously on Jan
27, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Issuer: Chevy Chase Funding LLC, Mortgage-Backed Certificates,
Series 2007-2
Cl. A-1, Confirmed at Caa3 (sf); previously on
Apr 16, 2010 Downgraded to Caa3 (sf) and Placed Under Review for
Possible Downgrade
Financial Guarantor: Ambac Assurance Corporation (Segregated Account
- Unrated)
Underlying Rating: Confirmed at Caa3 (sf); previously on Mar
30, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. A-1I, Confirmed at Caa3 (sf); previously
on Apr 16, 2010 Downgraded to Caa3 (sf) and Placed Under Review
for Possible Downgrade
Financial Guarantor: Ambac Assurance Corporation (Segregated Account
- Unrated)
Underlying Rating: Confirmed at Caa3 (sf); previously on Mar
30, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. A-NA, Confirmed at Caa3 (sf); previously
on Apr 16, 2010 Downgraded to Caa3 (sf) and Placed Under Review
for Possible Downgrade
Financial Guarantor: Ambac Assurance Corporation (Segregated Account
- Unrated)
Underlying Rating: Confirmed at Caa3 (sf); previously on Mar
30, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. A-2, Confirmed at Caa3 (sf); previously on
Jan 27, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. A-2I, Confirmed at Caa3 (sf); previously
on Jan 27, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. IO, Confirmed at Caa3 (sf); previously on Jan 27,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. NIO, Confirmed at Caa3 (sf); previously on Jan 27,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
A list of these actions including CUSIP identifiers may be found at:
Excel: http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF228647
A list of updated estimated pool losses, sensitivity analysis,
and tranche recovery details is being posted on an ongoing basis for the
duration of this review period and may be found at:
Excel: http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF225686
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating 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 Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Maxim Pertsov
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Amita Shrivastava
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's takes action on $846 million of Option ARM RMBS issued by Chevy Chase Funding LLC