Negative Equity Pulls Down Alt-A RMBS: Fitch

Negative equity and rising unemployment levels are pressuring the performance of US Alt-A residential mortgage-backed securities (RMBS), leading Fitch Ratings to take action on 767 deals. “Home price declines have resulted in negative home equity for approximately half of the remaining performing borrowers in the 2005-2007 vintages and approximately 10% of the remaining performing borrowers for all transactions prior to 2005,” said managing director Vincent Barberio. “Unemployment is up significantly since our last Alt-A rating review, particularly in California where the unemployment rate has jumped from 8% to a record-high of 11.6%.” The unemployment figures and increasing negative equity positions pressure the roll rates of performing borrowers into delinquency status despite the increased seasoning of the loans, Fitch said. Servicers so far modified 2% of Alt-A borrowers that are now listed as ‘current.’ The performance of Alt-A modifications so far indicates a re-default rate of more than 50% 12 months past modification. The Fitch-rated Alt-A transactions consist of 64% fixed-rate loans, 30% hybrid-ARM adjustable-rate mortgages (ARMs) and 6% option-ARM loans. The ratings agency said it now expects losses of 1% of the original pool balance on pre-2005 vintages, 8% on 2005 vintages and 18% and 26% on 2006 and 2007 vintages. Write to Diana Golobay.