More quality borrowers are refinancing out of prime RMBS loans originated in the pre-2005 era, leaving cracks in securitization deals launched well before the housing crisis, Fitch Ratings said.

As a result, Fitch recently placed several pre-2005 vintage residential mortgage-backed securities classes on negative ratings watch.

The prime RMBS deals under the microscope rolled onto the market before 2005 and developed a reputation for performing well. For starters, principal losses are still below 1% among the $650 billion in pre-2005 Fitch-rated Prime RMBS deals. And 93% of the deals have been fully repaid. 

Still, Fitch claims more high-quality borrowers are refinancing out of the RMBS pools and moving into loans with lower interest rates. This process leaves the pools with a higher concentration of borrowers who cannot refinance, according to Fitch managing director Grant Bailey.

This process is taking a toll and putting "negative rating pressure on the remaining bonds," Fitch said.

Despite a slight shift in their overall performance, Bailey claims pre-2005 senior classes are likely to keep their investment grade ratings and recover full principal.

However, the report does predict some negative rating actions could be likely in the future.

kpanchuk@housingwire.com