Fitch Discusses Performance Drivers of 2006/2007 U.S. Alt-A RMBS.

NEW YORK -- High risk attributes coupled with continued home price declines and the sharp contraction in available capital from the non-agency mortgage markets are the primary factors for the performance deterioration in U.S. Alt-A RMBS originated in 2006 and 2007, according to Fitch Ratings in a new report.

The interaction of declining home price declines with high risk mortgages has caused delinquencies to rise rapidly. As in the subprime market, loans with high risk attributes such as simultaneous second liens (SSLs, aka piggyback mortgages) are defaulting at very high rates relative to other loans and to history.

'There is a substantial performance divide, between loans with a SSL, and those without, with SSL loans exhibiting delinquency levels 71% to over 300% higher than those without depending on the product.' said Senior Director Suzanne Mistretta. 'Borrowers that have perceived equity in the home, including those underwritten to a low doc program, are exhibiting significantly lower delinquency rates than their SSL counterparts.' While loans with a SSL comprise a minority portion of the overall volume, they are driving the early poor performance and higher loss expectations.

Fitch found that the performance varies significantly by product, with hybrid adjustable-rate mortgages (ARMs) exhibiting the highest rate of delinquencies and fixed-rate mortgages (FRMs) the lowest. Option ARM performance is comparable to that of FRMs for the first 12 months and then delinquencies quickly approach hybrid ARM levels by month 18.'

Fitch's portfolio is exhibiting lower absolute delinquency rates relative to the market as a whole. This reflects Fitch's relatively low market share in ARMs, which are underperforming fixed, and in particular, Option ARMs and so-called 'Alt-B' deals, which exhibit worse credit characteristics. 2007 Alt-A delinquencies for FRM transactions are at 5% for Fitch-rated deals (versus 13% for non-Fitch rated) and 10% for hybrid ARMs (compared to 14% for non-Fitch rated ARMs). 'The collateral performance gap is partly attributable to deal selection bias due to Fitch's conservative views on risk-layering and payment shock' said Glenn Costello, Managing Director. 'Therefore Fitch portfolio loss projections may vary markedly from those of other market participants'

Fitch placed 417 RMBS transactions backed by Alt-A collateral originated in 2005-2007 on Rating Watch Negative due to performance deterioration, as discussed in its March 6 commentary 'U.S. Alt-A RMBS Performance Deteriorating Rapidly; Fitch Initiates Extensive Review'. Fitch plans to release future research detailing its revised Alt-A loss assumptions and review criteria later this month.

'Drivers of 2006-2007 Alt-A Collateral Performance' is available on the Fitch Ratings web site at www.fitchratings.com

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