RMBS, CDOs account for 91% of structured finance losses
While residential mortgage-backed securities and collateralized debt obligations currently account for 91% of expected total losses on structured financial products, a new study from Fitch Ratings says securitization vehicles are performing better than most people would expect. RMBS and CDO products are faring poorly in the wake of the subprime crisis and a four-year economic lull, Fitch said. However, the ratings giant found a few diamonds in the rough of the securitization market. "The RMBS and related structured finance CDO sectors lead the pack in both realized and expected future credit losses," Fitch said in its report. "In contrast, losses will remain surprisingly low for consumer asset-backed securities products like auto loans and credit cards despite expected continued economic gloom." Fitch noted that even the CMBS segment is expected to record losses at a lower level than previously expected. Fitch expects total losses on structured finance deals in the U.S. to reach $376 billion. RMBS and CDOs remain areas of top concern. To date, Fitch anticipates U.S. RMBS losses will reach 12% of the original balance of the loans, while CDO losses are expected to grow to 43% of the segment's original balance. Losses on ABS and CMBS remain conservative and paint a brighter picture for investors in asset-backed securities, according to the ratings agency. "Losses on assets such as auto loans and credit cards have been miniscule and are expected to remain so, with overall ABS topping out at around just over 1%," the research report said. "CMBS losses, which one would expect to be high given the dramatic drop in commercial real estate values, will likely reach a manageable level of 4% to 5% by the time the deals fully mature," Fitch concluded. Write to Kerri Panchuk.