Moody's Upgrades 43 Bonds and Downgrades 1 Bond in US Residential Mortgage-Backed Securities

Strategic Insights -

Moody's Investors Service has issued a press release announcing rating upgrades for 43 bonds and a rating downgrade for one bond from 17 US residential mortgage-backed transactions (RMBS), backed by Alt-A, option ARM, and subprime mortgages issued by multiple issuers. The upgrades reflect the current levels of credit enhancement available to the bonds, recent performance, analysis of transaction structures, updated loss expectations on the underlying pools, and revised loss-given-default expectations for each bond. The rating downgrade was driven by the insufficient credit protection to protect investors against current expectations of loss.

Key Takeaways:

  • 43 bonds were upgraded, including AFC Mtg Loan AB Certs 1999-02 1A, AFC Mtg Loan AB Notes 1999-03 Cl. 1A, and CHL Mortgage Pass-Through Trust, Series 2006-OA5 Cl. 1-A-1.
  • The upgraded bonds benefit from a financial guaranty insurance policy in some instances.
  • The rating downgrade was for CSFB Home Equity Asset Trust 2006-2 Cl. M-1, due to insufficient credit protection.
  • The upgrades reflect Moodys' forward-looking view of the performance of the underlying assets in relation to the available credit enhancement, without giving credit to the financial guaranty insurance policy.
  • No actions were taken on other rated classes in these deals, as their expected losses remain commensurate with their current ratings.
  • The ratings of the subordinate bonds could be upgraded if there are higher levels of credit protection or if losses decline from original expectations due to a lower number of obligor defaults or appreciation in property values.
  • The ratings could be downgraded if there are insufficient levels of credit protection, if losses rise above original expectations due to a higher number of obligor defaults or deterioration of property values, or due to other reasons such as poor servicing, servicing transfers, or policy or regulatory changes.

Statistics:

  • 43 bonds were upgraded
  • 1 bond was downgraded
  • 17 US residential mortgage-backed transactions (RMBS) were affected
  • The upgraded bonds benefit from a financial guaranty insurance policy in some instances
  • The rating downgrade was driven by insufficient credit protection
  • The upgrades reflect Moodys' forward-looking view of the performance of the underlying assets in relation to the available credit enhancement
  • 145 total classes were affected

Sources:

  • Moody's Ratings (Moody's)
  • "US Residential Mortgage-backed Securitizations: Surveillance" published in December 2024
  • https://ratings.moodys.com/rmc-documents/433953
  • https://ratings.moodys.com for a copy of the Rating Methodologies page