Fitch: U.S. CMBS & ABS Ratings Resistant in Contrast to Subprime RMBS

2008-05-15 22:30:57 -

- Despite early indications that liquidity conditions in the U.S. credit markets are beginning to recover, collateral and ratings performance migrated lower in first quarter-2008 (1Q'08) , according to Fitch Ratings in its 1Q'08 Structured Finance Credit Action Report.

Fitch issued 335 upgrades and 4,747 downgrades in the U.S. ABS, RMBS, and CMBS sectors in 1Q'08, compared with 637 upgrades and 202 downgrades during the same period in 2007. Negative rating actions were amplified by the RMBS and ABS downgrades related to Fitch's negative rating actions on the insurer financial strength (IFS) of the major financial guarantors.

U.S. CMBS:

--Despite significant attention on the performance of maturing loans and refinancing prospects, commercial real estate fundamentals continue to remain stable. In the first quarter of 2008, Fitch issued 69 upgrades and 39 downgrades on U.S. CMBS transactions, compared with 55 upgrades and 40 downgrades in 4Q'07. Fitch expects loan delinquencies to rise modestly during 2008, though they will remain low on a historical basis. Fitch is currently undergoing a portfolio review to evaluate all U.S. CMBS transactions with all deals completed through the 2004 vintage. With review on the 2005 vintage expected to be completed shortly, Fitch expects to assess the 2006 and 2007 vintages when the majority of year-end (YE) 2007 financials become available.

U.S. ABS:

--While falling home prices and fallout from the subprime mortgage crisis is also having a knock-on effect on asset performance in U.S. non-mortgage consumer ABS the majority of rating actions taken in the first quarter were not performance related. Rather, most downgrades taken so far this year in non-mortgage collateral were the result of negative rating actions taken on transactions supported by financial guaranty policies. In the first quarter (ended March 31, 2008), Fitch issued 250 upgrades and 505 downgrades, compared with a total of 233 upgrades and 61 downgrades for the full year in 2007. Absent the financial guarantor downgrades the upgrade to downgrade ratio was 6.4:1 in non-mortgage ABS compared with 2.4:1 in 4Q'07 and 3.8:1 for all 2007. Fitch expects the pace of upgrades to slacken for the remainder of 2008 due to economic pressures experienced by U.S consumers.

U.S. RMBS:

--Residential mortgage performance deteriorated markedly over the past several months largely due to the dramatic contraction in mortgage origination and securitization markets. As such, these developments prompted Fitch to adjust its projections accordingly. The contraction contributed to accelerating and deepening home price declines and, for many borrowers, eliminated the option to sell or refinance a home to avoid foreclosure. In 1Q'08, Fitch issued 16 upgrades and 4,203 downgrades, compared with 11 upgrades and 2,134 downgrades in the 4Q'07.

Fitch's 'Structured Finance Credit Action Report: First-Quarter 2008' report highlights credit trends and rating actions taken by Fitch Ratings in the U.S. RMBS, non-mortgage ABS, and CMBS sectors during 1Q'08. Sectors discussed in this report include: term asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), and residential mortgage-backed securities (RMBS). The report is available on the Fitch Ratings web site at www.fitchratings.com under the following headers:

Structured Finance then ABS then Special Reports

Structured Finance then RMBS then Special Reports

Structured Finance then CMBS then Special Reports

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, New York
Kevin D'Albert, 212-908-0823 (U.S. ABS)
Adam Fox, 212-908-0869 (U.S. CMBS)
Vincent Barberio, 212-908-0505 (U.S. RMBS)
Sandro Scenga, 212-908-0278 (Media Relations)