The recent performance of prime jumbo RMBS from 2005-2007 suggests average losses on the securities might be about three or more times what was previously expected, but there appears to be some hope government initiatives could still make a difference, according to Fitch Ratings.
Fitch said it "will continue to assess the range of potential impacts of government housing stabilization efforts on nonagency prime RMBS" and also will "continue to closely monitor other potential mitigants to performance deterioration, such as federal financial stability efforts."
Currently, Fitch expects 2005, 2006 and 2007 loss estimates to be "approximately three, four and five times higher, respectively, than prior loss estimates."
Huxley Somerville, Fitch's U.S. RMBS group head, said dramatic increases in delinquencies resulting from declining home values, rising unemployment and lack of refinancing alternatives, combined with declining credit enhancement are pressuring jumbo ratings.
Fitch said borrowers with negative equity in some recent vintage pools "are approaching 50%" and "after adjusting for home price declines to date, loans estimated to have no equity in the property are defaulting at rates approximately three times that of loans estimated to have equity remaining."