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.

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