The bulk of Italian RMBS could withstand a further sharp deterioration in the economy, Fitch Ratings said in a release today.
The agency said that roughly 80% of triple-A-rated tranches would be able to pay in full even under "a three-year severe recession and collapse of the real estate market." Fitch puts the notes through a ringer of a stress test, including scenarios of 17% unemployment - double the current figure - and a 70% plunge in the prices of foreclosed properties.
The hypothetical foreclosure price level assumes an overall drop in housing prices of around 45%, which, according to Fitch, would surpass even the epic crash suffered by the Irish property market from 2007 to 2010.
The scenario does not take into account Italy exiting the eurozone. The general view is that once a country abandons the euro, the redenomination of its assets will play havoc with price levels in foreign currencies, including, of course, European currencies.