Moody's Upgrades and Downgrades 26 Bonds from US Residential Mortgage-Backed Transactions

Strategic Insights -

Moody's has announced rating actions for 12 US residential mortgage-backed transactions (RMBS), backed by Alt-A and subprime mortgages issued by multiple issuers. The ratings of 14 bonds were upgraded, while 12 bonds were downgraded. The rating actions reflect the current levels of credit enhancement available to the bonds, recent performance, analysis of the transaction structures, updated loss expectations on the underlying pools, and revised loss-given-default expectation for each bond.

Key Takeaways:

  • Moody's upgraded the ratings of 14 bonds from 12 US RMBS transactions backed by Alt-A and subprime mortgages, while downgrading 12 bonds.
  • The rating actions reflect the current levels of credit enhancement available to the bonds, recent performance, analysis of the transaction structures, updated loss expectations on the underlying pools, and revised loss-given-default expectation for each bond.
  • The rating downgrades for most bonds were the result of outstanding credit interest shortfalls that are unlikely to be recouped.
  • The size and length of the outstanding interest shortfalls were considered in the analysis, and bonds with weak interest recoupment mechanisms are more likely to experience permanent interest losses.
  • Multiple issuers, including CWABS, CWABS, Inc., First Franklin Mortgage Loan Trust, and MASTR Adjustable Rate Mortgages Trust, experienced rating changes.
  • The rating downgrade on Class M-3 from CWABS Asset-Backed Certificates Trust 2004-AB2 was the result of missed interest that is unlikely to be recouped.
  • No actions were taken on the other rated classes in these deals because their expected losses remain commensurate with their current ratings.

Statistics:

  • 14 bonds were upgraded, and 12 bonds were downgraded.
  • 12 US RMBS transactions were impacted, backed by Alt-A and subprime mortgages issued by multiple issuers.
  • The rating actions reflected an analysis of 26 bonds, with 14 upgraded and 12 downgraded.
  • 12 issuers experienced rating changes, including CWABS, CWABS, Inc., First Franklin Mortgage Loan Trust, and MASTR Adjustable Rate Mortgages Trust.
  • The rating downgrade on Class M-3 from CWABS Asset-Backed Certificates Trust 2004-AB2 resulted from missed interest that is unlikely to be recouped.
  • No actions were taken on the other rated classes in these deals because their expected losses remain commensurate with their current ratings.

Sources:

  • Moody's Investors Service, "Moody's Upgrades and Downgrades 26 Bonds from US Residential Mortgage-Backed Transactions," (date not specified)
  • Moody's, "US Residential Mortgage-backed Securitizations: Surveillance," December 2024, available at https://ratings.moodys.com/rmc-documents/433953
  • Moody's, "Rating Methodologies," available at https://ratings.moodys.com