OREANDA-NEWS. Fitch Ratings has taken various rating actions on 152 classes from 26 GSE Credit Risk Sharing (CRT) transactions issued between 2013 and 2016.

Fitch affirmed the ratings for 104 of the classes reviewed (39 original classes, 65 exchangeable classes) and upgraded 45 classes (19 original, 26 exchangeable). Three classes were marked paid-in-full. 127 classes have a Positive Outlook after the review, reflecting an increased likelihood of upgrades in the future. A spreadsheet detailing Fitch's rating actions can be found at 'www. fitchratings. com' by performing a title search for 'US RMBS GSE CRT Rating Actions for Jul 25, 2016'.

KEY RATING DRIVERS

The transactions under review include nine Fannie Mae Connecticut Avenue Securities (CAS) transactions, 15 Freddie Mac Structured Agency Credit Risk (STACR) transactions, one JP Morgan Madison Avenue transaction and one JP Morgan L-Street Securities transaction. Payments on the notes are subject to the credit and principal payment risk of reference pools of certain residential mortgage loans held in various guaranteed MBS. The CAS and STACR notes are general unsecured obligations of Fannie Mae and Freddie Mac, respectively.

The upgrades reflect improvements in the relationship of credit enhancement (CE) to expected pool loss since the prior review. All but one of the upgraded classes had a Positive Outlook or were on Rating Watch Positive prior to the review. Most of the classes positively affected by the rating changes are M-1 classes and the majority of the upgrades are between one and three rating notches in magnitude. M-1 classes from three transactions were upgraded more than three notches, reflecting Fitch's expectation that the notes will be paid in full within the next six months. For M-1 classes that were upgraded in this review, CE as a percentage of the remaining mortgage pool balance has increased between 38 and 226 basis points (bps) since issuance, with an average increase of 92 bps.

For five STACR transactions issued in 2014, M-2 classes were upgraded between one and three rating notches. In these transactions, the M-1 class has either already been paid in full, allowing the M-2 to receive principal, or the M-1 class is expected to be paid in full in the near term. For M-2 classes that were upgraded in this review, CE as a percentage of the remaining mortgage pool balance has increased between 60 and 158 bps since issuance, with an average increase of 119 bps.

Due to the sequential payment allocation of principal among the subordinate classes, the M-1 classes have received a significant amount of principal since issuance despite relatively limited seasoning. In high investment grade rating analysis projections, Fitch assumes low-probability and high stress scenarios that are likely to prevent the subordinate principal allocation tests from being satisfied, resulting in extended projected remaining lives for most rated classes. Many bonds expected to pay in full in a short time frame in the base-case scenario are projected to extend significantly in a stressed scenario. Consequently, the ratings may not necessarily benefit from a short expected time to pay off in the base-case.

To the extent the stressed scenarios do not occur and rated classes continue to pay down, the sequential payment priority is likely to increase positive rating pressure over time. Additional positive rating pressure is likely to develop over time as the transactions' remaining time until legal maturity shortens.

The reference mortgage pools have performed well to date, with no pool reporting more than 24 bps of serious (60+ days) delinquency as of the most recent remittance report. Property values in the reference pools have benefitted from home price appreciation since issuance. Since 2013, home prices have increased 19% nationally and 31% in California.

On average, Fitch's pool loss expectations are modestly lower than those assumed in the previous review, driven by shorter time frames until legal maturity, and improved loan-to-value ratios. All transactions reviewed have a hard bullet maturity date of 10 or 12.5 years from issuance, depending on the transaction, and as transactions season, Fitch generally adjusts its loss expectation to account for the reduced loss exposure window. Fitch intends to publish its pool-level default and loss assumptions at each rating stress in a separate special report in the near future.

RATING SENSITIVITIES

Fitch's analysis includes rating stress scenarios from 'CCCsf' to 'AAAsf'. The 'CCCsf' scenario is intended to be the most-likely base-case scenario. Rating scenarios above 'CCCsf' are increasingly more stressful and less likely to occur. Although many variables are adjusted in the stress scenarios, the primary driver of the loss scenarios is the home price forecast assumption. In the 'Bsf' scenario, Fitch assumes home prices decline 10% below their long-term sustainable level. The home price decline assumption is increased by 5% at each higher rating category up to a 35% decline in the 'AAAsf' scenario.

The ratings of bonds currently rated 'Bsf' or higher will be sensitive to future mortgage borrower behavior, which historically has been strongly correlated with home price movements. Despite recent positive trends, Fitch currently expects home prices to decline in some regions before reaching a sustainable level. While Fitch's ratings reflect this home price view, the ratings of outstanding classes may be subject to revision to the extent actual home price and mortgage performance trends differ from those currently projected by Fitch.

Additionally, because of the counterparty dependence on Fannie Mae and Freddie Mac, Fitch's rating on the notes could be affected by the Issuer Default Rating (IDR) of the GSEs if the IDR was to fall below the credit rating implied by the relationship of CE to expected reference mortgage pool loss.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.