'Majority of Performing 2006/2007 RMBS Loans Underwater'

Fitch Ratings has found that 60% of borrowers with performing loans in 2006 and 2007 U.S. mortgage securitizations are in negative equity positions and hundreds of seasoned deals are stressed as well, albeit to a lesser extent. Fitch said it has taken various rating actions on 649 seasoned, prime residential mortgage-backed securities transactions issued prior to 2005, citing pressure from negative home-equity positions and unemployment. However, it noted that in seasoned deals, while it has downgraded a significant number of mezzanine and subordinate classes, less than 5% of senior classes with top AAA ratings were negatively affected. Despite positive home price figures over the summer, Fitch projects over the next year a further home price decline of approximately 10% nationally. Even with the modifications and the first-time homebuyer tax credit helping home prices to some extent, the growing distressed inventory expected to result from continuing borrower stresses will cause prices to continue falling, according to Fitch senior director Grant Bailey. This means performing-to-delinquency roll-rates could stay high in prime as well as alternative-A and subprime credit RMBS from 2006/2007 into next year, Fitch said. The rating agency forecast in a recent global economic outlook report that unemployment would continue to rise and peak at 10.3% in the middle of 2010. It noted that this is a particular concern in California, where the greatest percentage of 2006/2007 RMBS borrowers is located. In California, unemployment is at 12.2% as compared to 9.8% nationally.