The impact of the continuing U.K. housing market downturn will have a minimal impact on the ratings of UK prime RMBS, said Fitch Ratings today in a report.
The agency examined the potential ratings impact of an expected 30% U.K. house price decline, from an October 2007 peak to the trough that Fitch expects in 2010.
"With evidence increasingly pointing towards a U.K. recession of the magnitude last seen in the previous recession of the early 1990s, our analysis also factored in increasing defaults based on the performance of prime mortgages during that period," said Gregg Kohansky, managing director, EMEA RMBS. "We found that under such stress, U.K. Prime RMBS ratings exhibit minimal negative rating transition."
The report also identified that 'AAA' prime U.K. pass-through RMBS of 2003-2007 vintage have a current loss coverage of 9.2x when factored against the agency's stress scenario.
The report also includes loss coverage and break-even RMBS default analysis for all vintages of U.K. prime pass-through RMBS across a variety of house price decline and mortgage default scenarios.
In Fitch's expected scenario, potential rating migration for both pass-through and master trust RMBS is limited to the lower-rated tranches.
Of the passthrough RMBS, none of the 'AAA' and 'AA'-rated notes would likely be affected with roughly 22% of 'A'-rated notes potentially being downgraded by one rating category.
No 'AAA', 'AA' and 'A'-rated master trust notes would see negative rating migration under this scenario.