Fitch expects to revise the rating outlook for what appears to be a relatively small number of residential and commercial mortgage-backed securities to negative in line with the negative outlook it has assigned to the U.S. sovereign rating and to issuer-default ratings of mortgage-related government-sponsored enterprises.
“Dependence on the U.S. sovereign rating is almost non-existent in U.S. mortgage-backed securities,” Rodney Pelletier, managing director, Fitch Ratings, told this publication. “The percentage of outstanding ratings in both RMBS and CMBS tied to the U.S. debt rating is well below 0.5%.”
The action could affect up to 100 classes guaranteed or insured by Fannie Mae, Freddie Mac and the Federal Housing Administration as well as a small number of CMBS transactions that may be significantly defeased with U.S. Treasury strips, the latter being something Fitch said it would review on a case-by-case basis.
Rated RMBS and CMBS typically are private-label deals and not government guaranteed, although sometimes (for example, RMBS resecuritizations with government-related collateral) they are rated. In the case of CMBS, there may be government exposure if there are defeasance requirements. Defeasance requires cashflows to be replaced using U.S. Treasury securities if refinancing occurs before the end of a specified period.
Fitch has revised rating outlooks to negative on Fannie, Freddie, the Federal Home Loan Banks and the Farm Credit System.
The rating agency said its negative outlook on the U.S. reflects its declining confidence that there will be timely fiscal measures necessary to place U.S. public finances on a sustainable path. It specifically cited the failure of the Congressional Joint Select Committee on Deficit Reduction to agree to at least $1.2 trillion of measures to cut the federal budget deficit over the next 10 years as mandated under the Budget Control Act passed in August.
