Rising unemployment and negative home equity are resulting in an increasing number of U.S. prime residential mortgage-backed securities (RMBS) mortgage borrowers falling behind on their monthly payments, according to Fitch Ratings.
In response, Fitch has taken various rating actions on 581 prime RMBS transactions issued between 2005 and 2008. A spreadsheet detailing Fitch's rating actions on the affected transactions can be found on Fitch's Web site, www.fitchratings.com, by performing a title search for "Prime RMBS Rating Actions for September 10, 2009."
Unemployment has risen significantly since the start of the year, particularly in California, where it has reached the highest level on record.
"Job losses are particularly detrimental for borrowers with negative equity," says Fitch's senior director, Grant Bailey. "Approximately 45 percent of the borrowers in the pools reviewed currently owe more on their mortgages than their home is worth."
The updated expected collateral losses for the RMBS transactions incorporate performance trends since Fitch's last rating revisions in the first quarter of this year. While actual loan losses to date remain low, on average, for the transactions reviewed (36 basis points), average delinquency has almost doubled since the start of the year to 11% and continues to grow due to high average roll rates from performing to delinquency, Fitch says.
While the roll rates are no longer worsening and appear to have stabilized, they remain approximately twice as high as those experienced in the first half of 2008.
As in the subprime and Alt-A sectors, prime borrowers who qualified for their loans with less-than-full income documentation while also having a second-lien subordinate to the lien in the securitized pool are more likely to be delinquent. Such borrowers are approximately twice as likely to be delinquent as the remaining borrowers in the pools reviewed, Fitch says.
SOURCE: Fitch Ratings