Fitch Revises Its MBS Loss Estimates

New York-Fitch Ratings has revised its surveillance methodology for evaluating subprime residential mortgage-backed securities to reflect higher loss expectations on loans originated between 2005 and 2007.

Fitch now expects more than half of the remaining loans in subprime RMBS from those years to go into foreclosure. Specifically, Fitch predicts that of the remaining loans in transactions from 2005, 2006 and 2007, the share that will go into foreclosure is 49%, 60% and 52%, respectively. When loss severity is added to the equation, Fitch estimates that investors will lose 30% of the remaining principal balance on 2005 transactions, 39% on 2006 transactions and 34% on 2007 transactions.

Fitch said it has expanded its use of loan-level analsyis for private-label MBS backed by subprime credit quality home loans.

Fitch said the changes reflect enhancements to the rating agency's ResiLogic program for projecting default frequency and loss severity.

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