Fitch Ratings has published its criteria for rating resecuritizations of U.S. RMBS. The rating agency uses this criteria for analyzing new issue securities backed by individual or
small groups of RMBS pledged into a re-REMIC structure.
According to Fitch, the expectations of how a re-REMIC will perform depend a lot on the deal's underlying structure, since the underlying bonds' credit enhancement will offer the first layer of credit protection to the entire re-REMIC deal. When analyzing underlying bonds inre-REMICs, Fitch looks at each group independently, with expected and stressed losses determined at the loan level.
The rating agency said that consistent with other RMBS product, the agency uses its ResiLogic gross loss model as the basis for determining revised expected pool-level losses, as well as stresses up to the ‘AAA’ level for Fitch rated re-REMICs.
Aside from this, to help verify performance expectations, the rating agency performs a historical analysis of roll rate trends on loan pools that are associated with the re-REMIC. The analysis' value is in capturing the risk posed by the velocity of delinquencies within a pool, the agency said.
Since senior bonds supported by different groups within the same deal might have differing loss expectations, the rating firm analyzes both the underlying deal structure(s) and the collateral at the related group level when analyzing re-REMICs.
Fitch said that the cash flow methodology is utilized to incorporate the impact of these expected losses and stresses on the bond(s) pledged into the re-REMIC, as well as to assess this impact on the underlying as well as the re-REMIC structures using the Intex cashflow modeling tool. This process removes the non-existent cross-collateralization benefit in scenarios where the subordinate bonds in the underlying transactions are totally written down.
Also, Fitch's cash flow analysis is important when analyzing pay structures of the re-REMIC. The rating agency previously published commentary on the significance of cash flow analysis in stressing different types of re-REMIC structures.
The rating agency now has a moratorium in place for rating U.S. RMBS re-securitizations backed by deals with subprime, Alt-A with overcollateralization structures, or other esoteric assets due to continued performance volatility in these sectors.
Additionally, the agency extended the moratorium to rating re-REMICS made up of of non-senior bonds and also to the rating of the subordinate bonds of the re-REMICs themselves. Fitch will review its position on these asset classes when performance stabilizes.