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).
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.