Some good news came out of the non-conforming sector last week. Fitch Ratings announced that it upgraded 23 and affirmed 42 tranches from five Kensington Mortgages Residential Mortgage Securities (RMS) nonconforming deals. The agency upgraded subordinated notes for RMS 16, RMS 17 and RMS 18 (classes M1, M2 and B1) and the mezzanine notes (classes M1 and M2) for RMS 19. All the non-'AAA' notes in these transactions now have a positive outlook. The rating said the upgrades to RMS 16 to RMS 19 reflect the continued high principal payment rates (PPR) for these transactions, which resulted in higher credit enhancement levels. RMS 20 has been affirmed (all classes) with stable outlook. RMS 15, RMS 16 and RMS 17 drew on their reserve funds in the summer and autumn of 2005, prompting investors to have their first significant cause for concern over the sector's performance in recent years. Fitch said that while it still expects the level of prepayments to fall across U.K. nonconforming transactions resulting from the tightening of lending criteria since summer 2007, this is not expected to affect the Kensington deals to the same extent, as a result of the seasoning of the loans in the pools.

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