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Older U.K. RMBS Deals Could Feel Ratings Pinch
October 14, 2008
Fitch Ratings said today that U.K. nonconforming RMBS face increasing downside as a result of the current declining performance trends and downward pressure on house prices.
According to Halifax, Britain's biggest mortgage lender, house prices lost 13.2% of value for the year ended 30 September 2008, the biggest ever recorded loss for a one-year period.
"We are increasingly concerned over U.K. non-conforming RMBS performance, where 90-day delinquencies and current losses, in some cases, are exceeding 20%," said Rodney Pelletier, managing director in Fitch's structured finance team.
Downgrades would most likely affect the lower- rated tranches of non-conforming RMBS deals and uncollateralized excess spread notes, while the highest rated 'AAA' notes are less exposed. Fitch noted that while older transactions with significant prepayments are generally less affected, they are not immune to potential downgrades on the lower-rated tranches, especially if significant negative selection has occurred and losses increase significantly.
The agency has underway a supplementary study to set out its expected case of house price movements and mortgage defaults. U.K. nonconforming RMBS tranches potentially exposed under this expected case will be put 'under special review' for possible rating action.
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