A barrage of ratings actions assaulted the harrowed manufactured housing sector with all three major rating agencies taking action on transactions from seven different issuers in the past three weeks. Six of the seven issuers had deals downgraded, mostly due to higher-than-expected defaults and loss severities. Only one issuer, Vanderbilt Mortgage, actually had its deals upgraded. "This is likely the result of the agencies doing their yearly reviews and realizing that many existing transactions are still on a trend of poor performance," speculated one rating analyst, who didn't want to be named commenting on competitor's activity.
The largest crop of downgrades in terms of issuers came from Standard & Poor's as it lowered its ratings on transactions from four issuers. Four classes of Bombardier Capital's Series 1998-C as well as seven classes from that issuer's Series 1999-A transaction were downgraded. Associates Corp. Manufactured Housing Contract Pass-Thru Series 1996-2 and UCFC Funding Corp. Manufactured Housing Pass-Thru Certificates Series 1998-3 each had two classes downgraded by S&P. Rounding out S&P's crop of February MH downgrades was Indymac Mortgage Manufactured Housing Contract Pass-Thru Trust 1998-2, with four tranches downgraded and removed from Creditwatch negative.
"The lowered ratings reflect the continued adverse performance trends exhibited by the underlying pools of manufactured housing installment sales contracts and mortgage loans and the resulting deterioration of credit enhancement," according to S&P. "The unfavorable market conditions that continue to plague the manufactured housing industry have contributed to the poor performance of these transactions."
Fitch Ratings also weighed in on classes from two transactions by Access Financial and 23 tranches from 15 deals issued by Oakwood Homes, downgrading them all.
Moody's Investors Service gave the only upgrades to the guaranteed classes of 11 different transactions from Vanderbilt. Those upgrades come as a result of a corporate guarantee from Vanderbilt's parent, Clayton Homes, Inc., which was upgraded to Baa1' from Baa2' earlier in the month. Additionally, 26 mezzanine and subordinate tranches from Vanderbilt are also being placed under review for possible upgrade.
"Performance in the sector has been stable, but that performance has been relatively poor," said a market source. "There is not a lot of hope that these homes are going to be worth enough so that people have an incentive to pay off their mortgages, and as a result we can expect significant defaults. As for the existing deals, we're in for a sustained period of poor performance," he said.
As for the state of the MH market going forward, analysts from Lehman Brothers and others predict total issuance to be less than $1 billion on the year. Vanderbilt and Oakwood are expected to receive funding from Berkshire Hathaway, parent company of Clayton Homes, rather than from the ABS market, and origination from Green Tree Servicing is expected to be small and stay on the balance sheet, according to Lehman.
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