S&P: Various Rating Actions Taken On Two U. S. RMBS Transactions
ANALYTICAL CONSIDERATIONSWe incorporate various considerations into our decisions to raise, lower, or affirm ratings when reviewing the indicative ratings suggested by our projected cash flows. These considerations are based on transaction-specific performance or structural characteristics (or both) and their potential effects on certain classes.
UPGRADEOur projected credit support for the upgraded class is sufficient to cover our projected loss at this rating level. The upgrade reflects a decrease in delinquencies as well as an increase in credit support relative to our projected loss. Total 60-plus-days delinquencies decreased to 2.04% at July 2016 from 4.13% at December 2013.
AFFIRMATIONSThe affirmations of ratings in the 'AAA' through 'B' rating categories reflect our opinion that our projected credit support on these classes remained relatively consistent with our prior projections and is sufficient to cover our projected losses for those rating scenarios.
For certain transactions, we considered specific performance characteristics that, in our view, could add volatility to our loss assumptions and, in turn, to the ratings suggested by our cash flow projections. When our model recommended an upgrade for certain classes, we affirmed our ratings on those classes to account for this uncertainty and promote ratings stability.
Long Beach Mortgage Loan Trust 2004-5 has permanently failed its loss trigger, resulting in a permanent sequential payment of principal. No principal will be paid to its subordinate classes until the senior classes have been paid in full. Therefore, we affirmed our ratings on certain classes in this transaction even though these classes may have passed at higher rating scenarios.
The ratings affirmed at 'CCC (sf)' or 'CC (sf)' reflect our belief that our projected credit support will remain insufficient to cover our 'B' expected case projected losses for these classes. Pursuant to "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published Oct. 1, 2012, the 'CCC (sf)' affirmations reflect our view that these classes are still vulnerable to defaulting, and the 'CC (sf)' affirmations reflect our view that these classes remain virtually certain to default.
ECONOMIC OUTLOOKWhen determining a U. S. RMBS collateral pool's relative credit quality, our loss expectations stem, to a certain extent, from our view of how the loans will behave under various economic conditions. S&P Global Ratings' baseline macroeconomic outlook assumptions for variables that we believe could affect residential mortgage performance are as follows:An overall unemployment rate of 4.8% in 2016;Real GDP growth of 2.0% for 2016;The inflation rate will be 2.2% in 2016; andThe 30-year fixed mortgage rate will average about 3.7% in 2016.Our outlook for RMBS is stable. Although we view overall housing fundamentals positively, we believe RMBS fundamentals still hinge on additional factors, such as the ultimate fate of modified loans, the propensity of servicers to advance on delinquent loans, and liquidation timelines.
Under our baseline economic assumptions, we expect RMBS collateral quality to improve. However, if the U. S. economy were to become stressed in line with S&P Global Ratings' downside forecast, we believe that U. S. RMBS credit quality would weaken. Our downside scenario reflects the following key assumptions:Total unemployment will tick up to 4.9% for 2016;Downward pressure causes GDP growth to fall to 1.8% in 2016;Home price momentum slows as potential buyers are not able to purchase property; andWhile the 30-year fixed mortgage rate remains a low 3.7% in 2016, limited access to credit and pressure on home prices will largely prevent consumers from capitalizing on these rates.