Fitch Ratings’ review of 1,246 rated subprime RMBS issued between 1993 and 2008 shows that, on average, losses are relatively stable and expected defaults are still improving, but continuing housing market weakness and foreclosure delays are still driving expected loss severities higher.
Average expected mortgage losses of 37% are not that different from those seen in Fitch’s prior 2010 review. Expected defaults, on average, show modest improvement at 48%. Fitch said this was due to positive selection among remaining borrowers and improvements in modified loan performance.
Average loss severities, however, are worse at 76% due to longer foreclosure timelines and home price declines, according to Fitch.
Within the deals, 1,633 classes faced downgrades but 8,993 classes of securities had affirmed ratings.
Fitch projects an average principal recovery of 60% for the remaining senior classes from the 2005-2008 vintages. But the rating agency noted that if one factors in the large percentage of the initial class senior class balances that have already repaid, projections for cumulative principal recovery is over 90% for all original senior classes issued between 2005 and 2008.