Moody's Downgrades $194M of Subprime RMBS

Moody's Investors Service has downgraded four tranches issued by Bravo Mortgage Asset Trust 2006-1, following an error in job market and servicer-related loss expectations on certain subprime loans in the pool.

Moody’s downgraded Bravo Mortgage Asset Trust 2006-1 Class A-2 to A3(sf) barely two months after placing the assets under review for possible downgrade on May 7. Also Class A-3 has been downgraded to Baa1(sf), A1(sf) to Class M-1 downgraded to Caa1(sf), and Ba3(sf) which was placed under review for possible downgrade Class M-2 downgraded to C(sf).

Analysts said the actions are a result of the recent performance issues of the underlying pools as well as “the correction of an error in the Structured Finance Workstation cash flow model” previously used in rating this transaction.

In prior rating actions for Bravo Mortgage Asset Trust 2006-1, the aggregate Class A-2 bond balance received “an overstatement of the credit enhancement available to cover losses on these bonds.”

To correct the error analysts placed three tranches on review on May 7.

“The primary source of assumption uncertainty” in the previous evaluation was Moody’s central macroeconomic forecast “and performance volatility due to servicer-related issues,” and the higher-than-predicted unemployment rate which fell from 8.2% in June 2012 to 7.6% in June 2013 and did not range at 7% to 8% for 2013 as predicted.

Despite the positive effect of continuous improvements in house prices this year analysts expect the future performance of RMBS will remain “highly dependent on servicer procedures,” new servicing transfers or other policy or regulatory changes.