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.