U.S. RMBS Still Dominate Downgrade Data, but…


Although 2013 could be different, the U.S. residential mortgage-backed securities sector continued to account for the majority of downgrades in Fitch’s 2012 global structured finance rating and impairment activity report.

Although Fitch said that this year could be the one during which the U.S. turns the corner, RMBS from this country continued to be responsible for 80% of downgrades in 2012.

“These were due to a combination of the expansion of Fitch Ratings’ U.S. RMBS loan loss model to the subprime and alt-A sectors and adverse selection in remaining U.S. prime pre-2005 pools,” according to Fitch.

“The application of rating caps to Spanish RMBS ratings following Fitch Ratings’ sovereign downgrade also negatively affected RMBS rating performance” in that country, the company noted.

Overall, rating and impairment varied widely by sector and rating category in 2012, according to Fitch.

“Downgrades overall remained in line with 2011; however, the number of active ratings declined year over year by close to 20%, and this contributed to a higher overall SF downgrade rate of 37% versus 31% in 2011,” according to the Fitch report, which also noted that upgrades affected 2% of ratings.

The structured finance impairment rate declined to 5.4% in 2012 from 9.4% in 2011. There were no impairments recorded in any structured finance sector at Fitch’s top rating level during the year. The impairment rate for investment-grade bonds was 0.11%, compared with 18.5% at the non-investment-grade level. The investment grade RMBS impairment rate was 0.15% and the commercial MBS rate was 0.10%.

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