Fitch Takes Various Rating Actions on 24 FHA/VA U.S. RMBS Deals

Fitch Ratings has taken various rating actions on 24 Federal Housing Administration (FHA)/Veterans Affairs (VA) mortgage-backed securities (RMBS) transactions in the course of its ongoing RMBS reviews.

The underlying collateral for these transactions consists of mortgage loans insured by the FHA and partially guaranteed by the VA or the Rural Housing Service (RHS). The mortgage loans are secured by first liens on one- to four-family residential properties and had been contractually delinquent at origination.

When determining each collateral pool's projected base-case loss, Fitch incorporated deal- and sector-level performance trends. The severities used in this review ranged from 6% to 10% depending on the actual severity history and the percentage of FHA, VA and RHS loans in the transaction.

The insurance provided by the FHA, VA and RHS resulted in lower severities compared to noninsured RMBS transactions, Fitch says. The weighted average frequency of foreclosure (FOF) for the transactions ranged from 10.7% to 39.8%.

The average updated expected collateral loss as a percentage of the original pool balance is 0.97%, with losses ranging from 0.28% to 3.02%. As a percentage of the remaining pool balances, the average expected loss is 1.75%, with losses ranging from 0.64% to 3.18%. The remaining pool balances of the reviewed transactions extending from 1998-2006 have paid down to approximately 16.1% of the original pool balances on average.

After determining each pool's projected base-case and stressed-scenario loss assumptions, Fitch took rating actions based on the relationship between each bond's credit enhancement and the expected loss.

In conjunction with its rating actions, Fitch has assigned loss severity (LS) ratings to 108 bonds with long-term credit (LTC) ratings of B or higher. Introduced in February, LS ratings are meant to complement the existing LTC ratings for structured finance securities. LTC ratings exclusively address the probability of default of a security. The LS ratings provide an indication of the relative degree of risk that a security might suffer a high loss severity in the event that the security defaults.

SOURCE: Fitch Ratings


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