Fitch is changing its loss-projection model, giving more weight to early performance, which increases the predicted chance of default, and increasing the expected default rates of adjustable-rate mortgages. It plans another review in approximately six months.
Default rates on 2006 mortgages are now double the rates on 2005 mortgages, and house prices continue to decline, the agency said. As a result, Fitch has downgraded 1,003 classes of subprime RMBS notes out of 3,231. The downgrades are concentrated among RMBS backed by closed-end second-lien mortgages. Even the highest-quality AAA-rated notes backed by such mortgages have not been immune, with 32 out of 51 downgraded. First-lien loans are more secure, Fitch found. The downgrades were concentrated among lower-quality notes (BBB+ or lower).