Fitch Ratings has lowered Washington Mutual Covered Bond Program's outstanding €4 billion mortgage covered bonds to 'AA-' from 'AA' and placed them on Rating Watch Negative.
This downgrade follows the downgrade of the Issuer Default Rating (IDR) of the program sponsor, JPMorgan Chase Bank to 'A+/F1' from 'AA-/F1+'
According to the rating agency, JPMorgan's IDR downgrade does not take away the reason for the covered bond rating since the D-Factor assigned to the program is still at 100%. This only allows for the covered bonds' rating on a probability-of-default basis to be equalized with the bank's long-term IDR at 'A+'.
Based on the agency's covered bond rating methodology, an uplift of a notch can be granted if the stressed recoveries are in the range of 51% to 90% in the case of a default on the covered bonds.
According to Fitch, the covered bonds are collateralized by a pool of payment-option and hybrid ARM first lien mortgage loans backed by U.S. residential properties roughly $7.9 billion as of March 31.
The portfolio had a weighted average current loan-to-value ratio of 63.8% and a weighted average FICO score of 737. Meanwhile, the weighted average residual maturity of the cover assets is around 24 years while that of the covered bonds is roughly 3.2 years.
