Prime RMBS deals that came to market prior to 2005, which have historically performed well, are now susceptible to rating downgrades, according to a Fitch Ratings report published today.
Principal losses on the $650 billion pre-2005 prime RMBS are well below 1%. Additionally, over 93% has already been fully repaid.
However, increased adverse selection has led to higher delinquencies for pre-2005 loans. Fitch said in the report that the shift has resulted from high-quality mortgage borrowers refinancings that have left the remaining mortgage pools "increasingly concentrated with borrowers unable to refinance."
This adverse selection coupled with existing tail-risk is an increasing negative rating pressure on the remaining bonds.