Moody's Upgrades Ratings of 16 US Residential Mortgage-Backed Transactions

Strategic Insights -

Moody's Investors Service has issued a press release announcing the upgrade of ratings for 16 bonds from seven US residential mortgage-backed transactions (RMBS). The upgraded ratings are a result of a comprehensive review of the credit ratings for the respective transactions. The upgraded bonds are 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 expectation for each bond.

Key Takeaways:

  • 16 bonds from seven US RMBS transactions have been upgraded by Moody's Investors Service.
  • The upgraded ratings are 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, and updated loss expectations on the underlying pools.
  • The principal methodology used in these ratings was "US Residential Mortgage-backed Securitizations: Surveillance" published in December 2024.
  • The upgrades also considered the existence of historical interest shortfalls for some of the bonds and the potential for recurrence.
  • No actions were taken on the other rated classes in these deals because their expected losses remain commensurate with their current ratings.
  • The size and length of the past shortfalls, as well as the potential for recurrence, were analyzed as part of the upgrades.
  • The ratings of the subordinate bonds could be driven up by levels of credit protection that are higher than necessary to protect investors against current expectations of loss.
  • Losses could decline from our original expectations as a result of a lower number of obligor defaults or appreciation in the value of the mortgaged property securing an obligor's promise of payment.
  • Transaction performance also depends greatly on the US macro economy and housing market.

Statistics:

  • 16 bonds from seven US residential mortgage-backed transactions have been upgraded.
  • The upgrades are backed by Alt-A, Option ARM, and subprime mortgages issued by multiple issuers.
  • The principal methodology used in these ratings was "US Residential Mortgage-backed Securitizations: Surveillance" published in December 2024.
  • The upgrades reflect the current levels of credit enhancement available to the bonds, recent performance, and updated loss expectations on the underlying pools.

Sources:

  • [1] Moody's Ratings, 2 March 2023, "List of Affected Credit Ratings," https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL506818.
  • [2] Moody's Investors Service, 2 March 2023, "Rating Actions," https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL506818.
  • [3] Moody's Investors Service, 2 March 2023, "Ratings Rationale," https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL506818.
  • [4] Moody's Investors Service, 2 March 2023, "Principal Methodology," https://ratings.moodys.com/rmc-documents/433953.