Moody's Downgrades $21.2M of Alt-A RMBS Issued Credit Suisse in 2006
Complete rating actions are as follows:
Issuer: CSMC Mortgage-Backed Trust Series 2006-9
Cl. 6-A-1, Downgraded to B3 (sf); previously on May 30, 2012 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. 6-A-2, Downgraded to B3 (sf); previously on May 30, 2012 Ba2 (sf) Placed Under Review for Possible Downgrade
The downgrades result from application of corrected pool projected losses associated with subgroup 6. Classes 6-A-1 and 6-A-2 are backed by collateral from subgroup 6. In the rating action taken on July 11, 2011 on Classes 6-A-1 and 6-A-2, the proportion of combined pool projected losses allocated to subgroup 6 was understated relative to its delinquent loans pipeline. The error has now been corrected, and today's rating action reflects that change.
The methodologies used in this rating were "Moody's Approach to Rating US Residential Mortgage-Backed Securities" published in December 2008, and "2005 -- 2008 US RMBS Surveillance Methodology" published in July 2011. The methodology used in rating Interest-Only Securities was "Moody's Approach to Rating Structured Finance Interest-Only Securities" published in February 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Moody's adjusts the methodologies noted above for 1) Moody's current view on loan modifications and 2) small pool volatility.
As a result of an extension of the Home Affordable Modification Program (HAMP) to 2013 and an increased use of private modifications, Moody's is extending its previous view that loan modifications will only occur through the end of 2012. It is now assuming that the loan modifications will continue at current levels until the end of 2013.
Small Pool Volatility
The above RMBS approach only applies to structures with at least 40 loans and pool factor of greater than 5%. Moody's can withdraw its rating when the pool factor drops below 5% and the number of loans in the deal declines to 40 loans or lower. If, however, a transaction has a specific structural feature, such as a credit enhancement floor, that mitigates the risks of small pool size, Moody's can choose to continue to rate the transaction. Please refer further to Moody's Investors Service's Withdrawal Policy, which can be found on our website, www.moodys.com.
For pools with loans less than 100, Moody's adjusts its projections of loss to account for the higher loss volatility of such pools. For small pools, a few loans becoming delinquent would greatly increase the pools' delinquency rate.
To project losses on Alt-A pools with fewer than 100 loans, Moody's first calculates an annualized delinquency rate based on vintage, number of loans remaining in the pool and the level of current delinquencies in the pool. For Alt-A pools, Moody's first applies a baseline delinquency rate of 10% for 2005, 19% for 2006 and 21% for 2007. Once the loan count in a pool falls below 76, this rate of delinquency is increased by 1% for every loan fewer than 76. For example, for a 2005 pool with 75 loans, the adjusted rate of new delinquency is 10.1%. Further, to account for the actual rate of delinquencies in a small pool, Moody's multiplies the rate calculated above by a factor ranging from 0.20 to 2.0 for current delinquencies that range from less than 2.5% to greater than 50% respectively. Moody's then uses this final adjusted rate of new delinquency to project delinquencies and losses for the remaining life of the pool under the approach described in the methodology publication.
When assigning the final ratings to bonds, in addition to the approach described above, Moody's considered the volatility of the projected losses and timeline of the expected defaults.
The primary source of assumption uncertainty is the uncertainty in our central macroeconomic forecast and performance volatility due to servicer-related issues. The unemployment rate fell from 9.0% in April 2011 to 7.9% in October 2012. Moody's expects house prices to drop another 1% from their 4Q2011 levels before gradually rising towards the end of 2013. Performance of RMBS continues to remain highly dependent on servicer procedures. Any change resulting from servicing transfers or other policy or regulatory change can impact the performance of these transactions.
A list of these actions including CUSIP identifiers may be found at:
A list of updated estimated pool losses, sensitivity analysis, and tranche recovery details is being posted on an ongoing basis for the duration of this review period and may be found at:
For more information please see www.moodys.com.
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Max Sauray Associate Analyst Structured Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Bruce D. Fabrikant Senior Vice President Structured Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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