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Subprime RMBS Market Strong

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Subprime RMBS Market Strong

Recent subprime RMBS ratings activity

August 25, 2003

By PATRICK CROWLEY

Even the weakened economy has been unable to derail what looks to be a record-breaking year of more than $20 billion in subprime mortgage-backed securities, according to two new reports from Moody’s Investors Service.“Second-lien issuance for the first quarter of 2003 was strong at more than $6.5 billion, indicating that total volume for the year could go up 10 percent to 15 percent over the 2002 numbers” of $20 billion issuance, said Moody’s analyst Marjan Riggi, who authored one of the reports on the subprime market.

The popularity of second-lien products for borrowers and lenders is driving the popularity, Riggi said. Appreciating property values coupled with low interest rates has increased the equity in borrowers’ homes and provided them the opportunity to take out a second loan on considerably better terms than credit cards or other consumer loans, according to the report.

Lenders benefit from the promotion of second-lien products as well “because it helps them increase profitability by creating multiple relationships with same borrower,” Moody’s said.

A second report from the ratings agency said the weak economy and rising unemployment did not fuel an expected deterioration the subprime market. “Through analysis of Moody’s Home Equity Index, we see that the increase in unemployment has so far had minimal impact on subprime performance as delinquency rates and losses have held steady, said report author Juli Tung, a Moody’s analyst. Tung does say that subprime performance could eventually be a victim of its own success. “Future subprime performance may suffer if increased competition between lenders leads to a relaxation of underwriting standards, since this would ultimately result in a weakening of the credit quality of subprime pools,” Tung said.

Ratings on six classes of WaMu Mortgage Pass-Through Certificates Series 2002-S2 Trust have been raised by Standard & Poor’s Ratings Services (S&P). The ratings of senior certificates in the issue have been affirmed. The raised ratings action reflect a significant increase in credit support percentages to the mezzanine classes due to the rapid paydown of the senior classes, combined with the shifting interest feature of the transaction, while the level of credit support influenced the affirmations. All of the transactions are backed by fixed- or adjustable-rate prime mortgage loans secured by first and second liens on owner-occupied one- to four-family residences.

Fitch Ratings has assigned a rating of ‘AAA’ to several classes of Mortgage Asset Securitization Transactions Inc.’s $1.7 billion mortgage pass-through certificates series 2003-7. Rated were classes 1-A-1 through 1-A-3, 2-A-1 through 2-A-7, 3-A-1, 4-A-1 through 4-A-46, 5-A-1, 15-PO, PP-A-X, 15-A-X, 30-A-X and A-R. The ratings reflect level of subordination and credit support. Broken into five groups the aggregate of 15-year to 30-year fixed-rated mortgages secured by first liens on one- to four-family residential properties have a weighted original loan-to-value (LTV) ratio of 63.98% and a weighted average FICO score of 740.

Countrywide Home Loan’s $300 million 2003-33 (Alternative Loan Trust 2003-15T2) securitization of prime quality mortgages have been rated ‘Aaa’ by Moody’s, which said it based the ratings on credit quality of the collateral pool, credit enhancement and level of subordination. The pool of primarily 30-year fixed-rate mortgage loans carry a weighted average LTV of 75% and a weighted average FICO score of 680.

Moody’s has also assigned a ‘Aaa’ to the senior certificates in Countrywide’s $309 million CHL 2003-28 securitization of “better than average” quality for 30-year jumbo loans based on credit quality and level of subordination. The 30-year fixed-rate loans have a weighted average FICO score of 730 and a weighted average combined LTV of 69%.

A rating of ‘Aaa’ has been assigned by Moody’s to the following classes of the $368.6 million Wells Fargo Mortgage Backed Securities 200-G Trust of 30-year adjustable-rate jumbo mortgage loans – Class A-1, A-I0, A-R, and A-LR. The ratings are based on the historical and expected performance of the loans and level of subordination. The pool has a weighted average FICO score of 738 and an original LTV value of 62%.

Six classes of Bank of America Mortgage 2001-11 Trust’s mortgage pass-through certificates have been raised by Fitch. The ratings now range from ‘AAA’ to ‘A’ on a pool of 15- and 30-year fixed- and adjustable-rate prime mortgage loans secured by first liens on owner occupied, one- to four-family dwellings. The ratings are based on a significant increase in credit support due to continued rapid paydown combined with the shifting interest feature of the transaction, no losses and credit support.


Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com

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