S&P corrects nearly 1,200 ratings on RMBS Re-REMIC transactions
Standard & Poor's Ratings Services placed ratings on 1,196 classes of 129 residential mortgage-backed securities real estate investment conduit transactions on credit watch with negative implications. The transactions were issued between 2002 and 2010. The so-called Re-REMICs are the re-securitization of mortgage loans that had already been pooled. Not all credit-rating agencies rate Re-REMICs. S&P said it "incorrectly analyzed" the timely and expected interest payments on the Re-REMIC classes and the allocation of those payments. Analysts did not take into effect the interest paid pro rata, or proportionately, on the senior securities. According to S&P, these inherently contain lower credit protection than securities in which the interest is paid sequentially. Two-thirds of the classes affected by the action are from transactions issued in in 2010 and one-quarter were issued in 2009. Of those issued before 2009, many of the actions were taken because of credit deterioration. "We plan to resolve the CreditWatch placements after we complete further analytical cash flow testing and documentation reviews, where appropriate," S&P said. Analysts at Barclays Capital said the actions were primarily due to the potential for interest short falls. Analysts at the British investment bank said it would difficult to break 2010 Re-REMIC super seniors from a credit standpoint, and the same is true for any issued in the back-half of 2009. "There will be some downgrades for 2008 and even early 2009 super seniors due purely to rating agency changes in loss assumptions since issuance," BarCap analysts said, adding the list released by S&P of affected securities "did not raise any questions on the bonds' credit-worthiness from the point of view of principal payments, but instead focused on the potential for interest shortfalls." Write to Jon Prior.