Moody's Upgrades 31 Bonds, Downgrades 12 Bonds from 16 US Residential Mortgage-Backed Transactions

Moody's Investors Service has announced the upgrade and downgrade of 43 credit ratings from 16 US residential mortgage-backed transactions (RMBS) backed by subprime mortgages. The rating actions reflect the current levels of credit enhancement available to the bonds, recent performance, analysis of transaction structures, updated loss expectations on underlying pools, and revised loss-given-default expectations for each bond.

Key Takeaways:

• 31 bonds were upgraded, while 12 bonds were downgraded, reflecting changes in credit enhancement, performance, and loss expectations.
• The rating downgrades were primarily due to outstanding interest shortfalls on bonds with weak interest recoupment mechanisms, where missed interest payments were unlikely to be recouped.
• The upgrades were driven by improving performance of related pools and an increase in credit enhancement available to the bonds.
• Historical interest shortfalls have been recouped for most bonds, but the size and length of past shortfalls, as well as the potential for recurrence, were analyzed as part of the upgrades.
• Principal losses have been incurred by some bonds, but subsequent recoupment has taken place in some cases.
• No actions were taken on non-affected rated classes due to commensurate expected losses and consideration of updated performance information, structural features, credit enhancement, and other qualitative factors.
• The rating methodology used was "US Residential Mortgage-backed Securitizations: Surveillance" published in December 2024.
• Factors leading to upgrades or downgrades include changes in credit protection, loss expectations, and transaction performance, which are influenced by the US macro economy and housing market.

Statistics:

• 43 credit ratings were affected by the rating actions, with 31 upgrades and 12 downgrades.
• 16 US residential mortgage-backed transactions were impacted, backed by subprime mortgages.
• Principles of rating methodology included levels of credit enhancement, current performance, analysis of transaction structures, updated loss expectations, and revised loss-given-default expectations.

Sources:

• Moody's Investors Service, "Moody's Ratings Upgrade and Downgrade Credit Ratings in 16 US RMBS Deals" (2024)
• Rating Methodologies, "US Residential Mortgage-backed Securitizations: Surveillance" (December 2024)
• Moody's Investors Service, "RATINGS RATIONALE" (2024)

Moody's Investors Service. (2024). Moody's Ratings Upgrade and Downgrade Credit Ratings in 16 US RMBS Deals. Retrieved from https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL508794

Moody's Investors Service. (2024). US Residential Mortgage-backed Securitizations: Surveillance. Retrieved from https://ratings.moodys.com/rmc-documents/433953