More trouble brewing for Alt-A mortgage securities, as rating agency Fitch announces a change in surveillance criteria:
Fitch Ratings-New York-30 May 2008: With serious delinquency levels for recently originated U.S. Alt-A RMBS transactions rising rapidly in recent months, Fitch Ratings has revised its rating methodology for the troubled asset class, replacing its pipeline default analysis with a more forward-looking analytical process to better align loss expectations with collateral risk and market conditions.
As Fitch goes on to state, the proximate cause for the revision has been a sharp uptick in delinquencies. Playing out much like subprime:
Average 60+ day delinquencies on 2006 fixed-rate mortgage (FRM) loans have reached 7.7% for Fitch-rated Alt-A deals (versus 10.2% for the market as a whole), while 60+ day late-pays on adjustable-rate mortgages (ARMs) for Fitch-rated transactions stand at 11.2% (compared to the whole market rate of 16.8%). ‘The speed and level at which Alt-A delinquencies were rising relative to historical trends was the primary impetus for the criteria change,’ according to Managing Director Vincent Barberio.
Fitch also release details on their loss assumptions, which they’re splitting into two scenarios: moderate stress (base-case) and high-stress. It’s the base-case loss assumptions which will be applied to current tranches, which results in the following loss levels:
Fixed-rate pools
–2005 vintage: 0.9%;
–2006 vintage: 2.4%;
–2007 vintage: 2.6%.
Hybrid adjustable-rate pools
–2005 vintage: 1.7%
–2006 vintage: 2.8%
–2007 vintage: 2.9%
The levels certainly aren’t significant enough to indicate actual damage to senior tranches, but they make downgrades across the board an inevitability. Calculated Risk reports Fitch senior director Grant Bailey saying as much:
I don’t know if it’s going to be a majority or not but I think a large number of the [Alt-A] senior classes are facing downgrade pressure.
Related links
Alt-A downgrade deluge – FT Alphaville