Reuters: Financial Services and Real Estate: TEXT-Fitch: Spanish RMBS stress tests show resilient ratings

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TEXT-Fitch: Spanish RMBS stress tests show resilient ratings May 8th 2012, 15:10 Tweet Share this Email Print Related Topics Bonds News » Bonds » Markets » Financials » Tue May 8, 2012 11:10am EDT May 8 - Most Spanish RMBS transactions show resilience to a further collapse in house prices and a jump in mortgage defaults in two stress tests Fitch Ratings has put the transactions through. The two scenarios demonstrate the stress required over the next three years to see multi-category downgrades of Fitch's Spanish RMBS ratings, including most of the 'BBBsf' and 'AAAsf' rated notes. The first stress is a low probability but plausible scenario in which an additional 7% of the current mortgage portfolio defaults. This is more than twice the 3% cumulative default rate observed since the start of the crisis, while nominal house prices drop by a further 36%. In such a scenario all 'AAAsf' rated bonds stay investment grade with 86% remaining 'AAAsf', but the majority of 'BBBsf' rated tranches would be downgraded with one-third being pushed to 'CCCsf' or lower. In the more severe scenario, defaults increase to 17% of the current mortgage portfolio, while house prices fall an additional 58%. We consider such an extreme scenario to be very remote and well beyond the realm of more plausible downside scenarios; even so, over 80% of 'AAAsf' rated transactions repay-in-full at maturity in the stress test results. Vintage and past performance of the transactions make the largest difference to the stress the notes can withstand. In terms of vintages the oldest and newest transactions fared the best. The oldest transactions benefited from better loan origination standards and a build up subordination, while the new transactions benefited from higher day one credit enhancement. The stress test only looks at collateral deterioration. However, sovereign and counterparty risk also influence rating stability. In the event of a sovereign downgrade to the 'BBB' category from the current 'A', Fitch expects Spanish RMBS 'AAAsf' ratings to be downgraded to the 'AAsf' category. The report, entitled Spanish RMBS Stress Test, is available at www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Spanish RMBS Stress Test Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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