The lull in downgrades on Alternative-A securities has come to an abrupt end as a result of rising delinquency.
Yesterday, Standard & Poor’s Ratings Service said it downgraded 5,589 ratings on 830 residential mortgage-backed securities. The Alt-A deals were issued between 2005 and 2007.
“The downgrades reflect our belief that credit enhancement for the affected classes will be insufficient to cover projected losses due to increased delinquencies,” S&P said.
The various classes were stress-tested to determine their ability to absorb losses — leading to the affirmation on 4,387 classes and prompting the downgrades.
“For example, in general, we would assess whether one class could withstand approximately 110 percent of our base-case loss assumptions to maintain a BB rating, while we would assess whether a different class could withstand approximately 120 percent of our base-case loss assumptions to maintain a BBB rating,” the New York-based firm explained. “Each class with an affirmed AAA rating can, in our view, withstand approximately 150 percent of our base-case loss assumptions under our analysis.”
Principal shortfalls or write-downs during the final period of cash-flow scenarios led to the lowering of ratings on some senior classes despite adequate coverage in prior periods. S&P pointed to the “structural mechanics” of the transactions in its analysis of final-period activity.
The downgrades followed five relatively quiet months of ratings activity for Alt-A RMBS.
Fitch ratings said in November that it downgraded 119 bonds in 85 RMBS transactions to D because of principal write-downs. There were 33 impacted Alt-A bonds, while 80 subprime bonds were affected.
Moody’s Investors Service reported that tranches of the following Alt-A transactions have been downgraded since September 2009.
- 123 tranches for $2.4 billion from 14 transactions issued by CitiMortgage in 2006 and 2007;
- certificates for $1.8 billion from seven GSAA Alt-A deals securitized in 2006 and 2007;
- 19 tranches for $634 million from Citigroup Mortgage Loan Trust, Series 2005-212;
- 16 classes for $577 million from CSFB Adjustable Rate Mortgage Trust 2005-8;
- $79 million in tranches from Banc of America Funding 2004-C Trust;
- eight certificates for $159 million from American Home Mortgage Investment Trust 2006-2;
- eight classes for $103 million from CSFB Mortgage-Backed Pass-Through Certificates, Series 2005-8; and
- two tranches of Bear Stearns ARM Trust 2005-9.
One piece of good Alt-A news was that Moody’s upgraded $89 million in certificates from GSAA Alt-A RMBS.