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Jumbo Defaults, Downgrades Soar

Ratings agencies downgrade jumbo RMBS

March 23, 2009

By MortgageDaily.com staff


Jumbo performance is quickly tanking, and the three major ratings agencies are busy revising their loss estimates on jumbo transactions. The worst performing jumbo mortgages are those securitized last year.

Fitch Ratings reported today that performance on prime jumbo loans has recently declined "dramatically." Projected cumulative losses are being raised on residential mortgage-backed securities issued between 2005 and 2007.

Jumbo borrowers are struggling with falling home prices, rising unemployment and fewer refinance options, Fitch said. Limited documentation borrowers who utilized second liens are defaulting three times as fast as their full-documentation counterparts. The higher rate of default is also associated with other loans that have risk layering.

Borrowers with negative equity account for as much as half of some pools. Fitch indicated that borrowers without home equity are defaulting at a rate that is three times that for borrowers who do have equity.

"The extent and rate of the portfolio deterioration associated with many of these transactions has resulted in downgrades for a significant number of subordinate and mezzanine bonds," Fitch said.

Last week, Moody's Investors Service announced it revised its prime jumbo loss projections for loans securitized between 2005 and 2008. The cumulative losses, based on the original balances, now range from 1.70 percent for 2005 issuances to 6.20 percent for 2008 RMBS.

Moody's, which noted that prime jumbo loans do not necessarily meet the stricter underwriting guidelines required on agency conforming loans, cited a substantial increase in delinquency and decrease in prepayment rates to "levels that are unprecedented for this asset class."

Delinquency of at least 60 days ranged from 1.6 percent on the 2005 vintage to 3.75 percent on the 2008 vintage. Those rates, however, are expected to increase to a range of 2.3 percent for 2005 issuances to 6.2 percent for 2008 issuances.

"As a result, it has placed 4,988 tranches of jumbo RMBS with an original balance of $240.7 billion and current outstanding balance of $173.3 billion, on review for possible downgrade," Moody's said. "Subordinate securities from 2006, 2007 and 2008 transactions will likely be completely written down."

Moody's said its loss projections factored in rising unemployment, another 11 percent decline in home prices and the Obama administration's Housing Affordability and Stability Plan. Moody's estimated that the government's modification plan will reduce defaults by 15 percent, while around one-third of those borrowers will re-default.

Standard & Poor's Ratings recently downgraded classes from the following U.S. prime jumbo RMBS, reflecting its opinion that projected credit support is insufficient to maintain the previous ratings given current projected losses.

  • Banc of America Mortgage 2007-3 Trust;
  • CHL Mortgage Pass-Through Trust 2007-15
  • First Horizon Mortgage Pass Through Trust 2006-AR1;
  • GMACM Mortgage Loan Trust 2006-AR1;
  • Harborview Mortgage Loan Trust 2006-2;
  • Lehman Mortgage Trust 2007-3;
  • RFMSI Series 2006-SA1 Trust;
  • RFMSI Series 2007-S9 Trust;
  • RFMSI Series 2007-SA1 Trust;
  • WaMu Mortgage Pass-Through Certificates Series 2007-HY2 Trust;
  • WaMu Mortgage Pass-Through Certificates Series 2007-HY3;
  • WaMu Mortgage Pass-Through Certificates, Series 2006-AR8 Trust;
  • CHL Mortgage Pass-Through Trust 2007-11;
  • CHL Mortgage Pass-Through Trust 2007-14;
  • Thornburg Mortgage Securities Trust 2006-1;
  • Wells Fargo Mortgage Backed Securities 2005-AR16 Trust; and
  • Wells Fargo Mortgage Backed Securities 2005-AR3 Trust.

S&P said on Feb. 26 that it placed 3,279 jumbo RMBS from 2006 and 2007 on CreditWatch negative. On Feb. 24, it reported downgrades on 47 prime jumbo transactions.

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