Fitch Ratings has placed 48 U.S. RMBS classes on Rating Watch
Positive in anticipation of potential future upgrades related to
pending payouts from the $8.5 billion Countrywide/Bank of America
settlement. A spreadsheet detailing Fitch's rating actions can be
found at 'www.fitchratings.com' by performing a title search for
'U.S. RMBS Rating Watch Positive Actions for July 28, 2015'.
KEY RATING DRIVERS
The Rating Watch Positive designations reflect the potential for
increased credit enhancement (CE) resulting from payments from the
pending settlement. Each trust's share of the $8.5 billion
settlement is expected to flow to the bond holders per the
transaction's principal waterfall, as if the payout were a large
prepayment. In general, outstanding senior classes are expected to
receive the bulk of the principal payments, reducing their
balances. Certain subordinate classes that have incurred writedowns
to date are expected to have their balances written back up, thus
increasing the credit enhancement of all classes they support.
The $8.5 billion settlement payout is to be allocated pro-rata
among the 530 subject trusts based on each trust's expected
lifetime losses. To estimate the payout amount each trust will
receive, Fitch used its U.S. RMBS Loan Loss Model to project future
losses on each outstanding pool, and added in realized losses to
date. Fitch estimates that each deal will receive a settlement
payment roughly equal to 10% of its expected lifetime losses.
Rating Watch Positive designations were determined by comparing
each class' projected post-settlement CE to projected pool loss
expectations for each rating stress.
Fitch has outstanding ratings on only 203 of the 530
transactions included in the settlement. Of the roughly 3,000
classes included in the settlement that Fitch actively rates, 74%
have incurred principal writedowns to date, and are currently rated
'Dsf'. These already-defaulted classes were not considered for
placement on Rating Watch Positive. While the settlement payouts
are expected to improve the recover prospects for many defaulted
classes, it is unlikely that Fitch would upgrade such classes above
'Dsf' because the lost interest to date related to the writedown is
not expected to be recovered.
BACKGROUND AND TIMING
On June 28, 2011, Bank of America Corporation (BAC) and
Countrywide Home Loans, Inc (CHL) reached a settlement with Bank of
New York Mellon (BNY) as trustee, representing 22 institutional
investors, regarding alleged breaches of representations and
warranties and violations of servicing obligations. Per the
settlement, BAC - which purchased CHL in 2008 - is to make a
payment of $8.5 billion to BNY, as trustee for 530 Countrywide RMBS
trusts. The settlement also calls for BAC to implement a number of
servicing improvements.
The settlement payout is contingent on both court and tax (IRS
and state) approval. After nearly four years, court approval was
received in April 2015 from the New York Supreme Court. Tax
approval has been requested by BNY but has not yet been received.
Once tax approval is received, a trustee-appointed third party
expert has 90 days to determine each trust's allocation of the
settlement payout, and BAC has 120 days from the tax approval date
to make the payments to the trusts.
If tax approval is received within the next month, the trusts
could receive the payments by the end of the year. However, if
there are further delays in the IRS approval process, the payouts
will likely not be made until 2016.
Fitch will continue to monitor the progress of the settlement.
After the settlement's payments are made, Fitch will conduct a full
analysis of all affected Fitch-rated classes - including those not
placed on Rating Watch Positive - for potential rating implications
and recovery estimate revisions.
RATING SENSITIVITIES
Fitch's analysis includes rating stress scenarios from 'CCCsf'
to 'AAAsf'. The 'CCCsf' scenario is intended to be the most-likely
base-case scenario. Rating scenarios above 'CCCsf' are increasingly
more stressful and less likely to occur. Although many variables
are adjusted in the stress scenarios, the primary driver of the
loss scenarios is the home price forecast assumption. In the 'Bsf'
scenario, Fitch assumes home prices decline 10% below their
long-term sustainable level. The home price decline assumption is
increased by 5% at each higher rating category up to a 35% decline
in the 'AAAsf' scenario.
In addition to increasing mortgage pool losses at each rating
category to reflect increasingly stressful economic scenarios,
Fitch analyzes various loss-timing, prepayment, loan modification,
servicer advancing, and interest rate scenarios as part of the cash
flow analysis. Each class is analyzed with 43 different
combinations of loss, prepayment and interest rate projections.
Classes currently rated below 'Bsf' are at-risk to default at
some point in the future. As default becomes more imminent, bonds
currently rated 'CCCsf' and 'CCsf' will migrate towards 'Csf' and
eventually 'Dsf'.
The ratings of bonds currently rated 'Bsf' or higher will be
sensitive to future mortgage borrower behavior, which historically
has been strongly correlated with home price movements. Despite
recent positive trends, Fitch currently expects home prices to
decline in some regions before reaching a sustainable level. While
Fitch's ratings reflect this home price view, the ratings of
outstanding classes may be subject to revision to the extent actual
home price and mortgage performance trends differ from those
currently projected by Fitch.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in
relation to this rating action.
Additional information is available at www.fitchratings.com.
U.S. RMBS Rating Watch Positive Actions for July 28, 2015
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869168
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds
(pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Interest Rate Stresses in Structured Finance
Transactions and Covered Bonds (pub. 19 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868
Criteria for Rating Caps and Limitations in Global Structured
Finance Transactions (pub. 28 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781
Global Rating Criteria for Single- and Multi-Name Credit-Linked
Notes (pub. 09 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863276
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Rating Criteria for U.S. Residential and Small Balance
Commercial Mortgage Servicers (pub. 23 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864368
U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863973
U.S. RMBS Loan Loss Model Criteria (pub. 17 Nov 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=810788
U.S. RMBS Master Rating Criteria (pub. 12 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866607
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 01 Jun
2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866259
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988648
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY
FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,
RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD
PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD
ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE
ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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version on businesswire.com: http://www.businesswire.com/news/home/20150728006723/en/
Fitch RatingsSurveillance AnalystSean
NelsonDirector+1-212-908-0207Fitch Ratings, Inc.33 Whitehall
StreetNew York, NY 10004orCommittee ChairpersonGrant BaileyManaging
Director+1-212-908-0544orMedia RelationsSandro Scenga, +1
212-908-0278sandro.scenga@fitchratings.com