Fitch: Any 'Cramdown' Downgrades Would Take Time to Hit

While legislation that allows bankruptcy judges to "cram down" residential mortgages will have a varied impact on mortgage-backed securities, analysts at Fitch Ratings say the legislation is "not likely to trigger immediate rating downgrades." But if cramdown legislation is enacted and entices more consumers to try to alter the terms of their home loans through the bankruptcy process, then downgrades may ensue, according to Huxley Somerville, head of Fitch's U.S. residential MBS group. "Due to varying deal language, about 31% of Fitch rated prime and alt-A transactions have a greater risk of senior bond downgrades with the remaining 69% having limited risk," Mr. Somerville said. Fitch said it remains to be seen what impact bankruptcy cramdowns may have on the extent and pace of loan modifications and the degree to which the legislation may increase consumer bankruptcy filings.