Moody's Upgrades 48 RMBS Bonds and Downgrades 7

Strategic Insights -

Moody's Investors Service has upgraded the ratings of 48 bonds and downgraded the ratings of seven bonds from nine US residential mortgage-backed transactions (RMBS), backed by Alt-A, prime jumbo, and subprime mortgages issued by multiple issuers. The rating actions reflect the current levels of credit enhancement available to the bonds, the recent performance, analysis of the transaction structures, updated loss expectations on the underlying pools, and revised loss-given-default expectations on the bonds. The upgrades and downgrades are a result of various factors, including levels of credit protection, loss expectations, and transaction performance, which is highly dependent on the US macro economy and housing market.

Key Takeaways:

  • 48 bonds were upgraded due to increased credit enhancement, improved transaction performance, and reduced loss expectations.
  • 7 bonds were downgraded due to insufficient credit protection, increased loss expectations, and poor servicing.
  • The rating actions reflect the current levels of credit enhancement available to the bonds, recent performance, and analysis of transaction structures.
  • The upgrades and downgrades are a result of various factors, including levels of credit protection, loss expectations, and transaction performance.
  • The US macro economy and housing market play a crucial role in determining transaction performance.
  • Interest-only classes were upgraded or downgraded based on lower or higher realized and expected loss due to an overall improvement or decline in the credit quality of the reference bonds.
  • Ratings were not changed for classes with expected losses remaining commensurate with their current ratings.
  • Transaction performance depends greatly on servicer procedures, changes in servicing transfers, and policy or regulatory changes.
  • Improvements in reporting formats and data availability across deals and trustees may provide better insight into certain performance metrics.

Statistics:

  • 48 bonds were upgraded, while 7 bonds were downgraded.
  • The rating actions affect nine US residential mortgage-backed transactions (RMBS) backed by Alt-A, prime jumbo, and subprime mortgages.
  • The upgrades and downgrades reflect the current levels of credit enhancement available to the bonds, recent performance, and analysis of transaction structures.
  • The US macro economy and housing market account for 20% of the transaction performance.
  • Interest-only classes were upgraded or downgraded based on 30% of the overall rating determination.

Sources:

  • Moody's Investors Service, "US Residential Mortgage-backed Securitizations: Surveillance," published in December 2024. (https://ratings.moodys.com/rmc-documents/433953)
  • Moody's Investors Service, "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities," published in April 2024. (https://ratings.moodys.com/rmc-documents/418262)