Fitch Ratings has found more than one-third of loans underlying prime private-label mortgage-backed securities are now underwater, and it could get even worse.
After adding a new component to its review of prime PL residential MBS that revised default expectations for borrowers with little-or-no equity, Fitch is taking an even more pessimistic view of how many borrowers in this category could end up underwater, managing director Grant Bailey told this publication.
Roughly one third of these borrowers have been underwater since late-2009, he said. If home prices meet expectations that they will generally fall another 10%, roughly half of the borrowers who took out these loans could end up underwater on their mortgages, according to Bailey, who is head of U.S. RMBS surveillance at Fitch.
Fitch said it also found in reviewing deals it rated that more than 12% of prime borrowers are seriously delinquent on their loans.
In its latest review, Fitch affirmed or upgraded its ratings on 58% of prime RMBS it rated while it downgraded 42%, primarily those with low, speculative grade ratings of single-B or below.
