OREANDA-NEWS. S&P Global Ratings today completed its review of 98 classes from 18 U. S. residential mortgage-backed securities (RMBS) transactions issued between 2001 and 2006. The review yielded 33 upgrades, six downgrades, and 59 affirmations.

The transactions in this review are backed by a mix of fixed - and adjustable-rate subprime mortgage loans, which are secured primarily by first liens on one - to four-family residential properties.

With respect to insured obligations, where the bond insurer is not rated, we relied solely on the underlying collateral's credit quality and the transaction structure to derive the rating on the class. As discussed in our criteria, "The Interaction Of Bond Insurance And Credit Ratings," published Aug. 24, 2009, the rating on a bond-insured obligation will be the higher of the rating on the bond insurer and the rating on the underlying obligation, without considering the potential credit enhancement from the bond insurance.

Of the classes reviewed, the following class was insured by a rated insurance provider when the deal was originated, but S&P Global Ratings has since withdrawn the rating on the insurance provider of this class:Citigroup Mortgage Loan Trust Inc., Series 2003-HE3 class A ('A (sf)'), insured by Ambac Assurance Corp. 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.

UPGRADESThe upgrades include five ratings that were raised three or more notches. Our projected credit support for the affected classes is sufficient to cover our projected losses for these rating levels. The upgrades reflect one or more of the following:Improved collateral performance/delinquency trends; and/orIncreased credit support relative to our projected losses. The upgrade on class M-2 from ACE Securities Corp. Home Equity Loan Trust, Series 2004-RM1 reflects a decrease in our projected losses and our belief that our projected credit support for the affected class will be sufficient to cover our revised projections at the current rating level. We have decreased our projected losses because there have been fewer reported delinquencies during the most recent performance periods compared to those reported during the previous review dates. Loss severities decreased to 18.51% at August 2016 from 81.46% at September 2013, and severe delinquencies decreased to 1.84% at August 2016 from 14.88% at September 2013.

We raised our ratings on the following classes from 'CCC (sf)' because we believe these classes are no longer vulnerable to default:Classes M-2 and M-3 from ABFC 2003-OPT1 Trust;Class M-1 from ABFC 2004-OPT4 Trust;Classes M-2, M-3, and M-4 from ACE Securities Corp. Home Equity Loan Trust, Series 2004-RM1;Classes A-1A and A-2C from ACE Securities Corp. Home Equity Loan Trust, Series 2006-OP1; andClass M-2 from Citigroup Mortgage Loan Trust Inc., Series 2003-HE3.We also raised the following ratings from 'CC (sf)' because we believe these classes are no longer virtually certain to default, primarily owing to the improved performance of the collateral backing this transaction:Class M-3 from ABFC 2004-OPT4 Trust;Classes M-5 and M-6 from ACE Securities Corp. Home Equity Loan Trust, Series 2004-OP1;Classes M-5 and B-1 from ACE Securities Corp. Home Equity Loan Trust, Series 2004-RM1;Class M-6 from Ameriquest Mortgage Securities Inc., Series 2003-12;Classes M-6 and M-7 from Argent Securities Inc., Series 2004-W6;Classes M-4, M-5, and M-6 from Bear Stearns Asset Backed Securities Trust 2004-HE2;Classes M-4, M-5, and M-6 from Bear Stearns Asset Backed Securities I Trust 2004-HE5;Classes M-3 and M-4 from Citigroup Mortgage Loan Trust Inc., Series 2003-HE3; andClass M-7 from CWABS Asset Backed Certificates Trust 2004-ECC2.However, those ratings raised to 'CCC (sf)' indicate that we believe that our projected credit support will remain insufficient to cover our projected losses for these classes and that the classes are still vulnerable to defaulting.

DOWNGRADESWe lowered six ratings, with four remaining at an investment-grade level ('BBB-' or higher), while the other two downgraded classes already had speculative-grade ratings ('BB+' or lower). The downgrades reflect our belief that our projected credit support for the affected classes will be insufficient to cover our projected losses for the related transactions at a higher rating. The downgrades reflect deteriorated credit performance trends.

The downgrade on class M-1 from Argent Securities Inc., Series 2003-W5 reflects the increase in our projected loss and our belief that the projected credit support for the affected class will be insufficient to cover the projected losses we applied at the previous rating levels. The increase in our projected loss is due to higher reported delinquencies during the most recent performance periods when compared to those reported during the previous review dates. Severe delinquencies increased to 11.9% at August 2016 from 10.8% at September 2013.

The downgrade on class M-1 from Bear Stearns Asset Backed Securities I Trust 2004-HE5 reflects the impact of the passing of the payment allocation triggers, allowing principal payments to be made to more subordinate classes, which erodes the projected credit support for this class.

AFFIRMATIONSThe affirmations of ratings in the 'AAA' through 'B' categories reflect our opinion that our projected credit support on these classes remains 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, we either limited the extent of our upgrade or affirmed our ratings on those classes to account for this uncertainty and promote ratings stability. In general, these classes have one or more of the following characteristics that limit any potential upgrade:Insufficient subordination, overcollateralization, or both;A trend of delinquencies; and/orSignificant growth in observed loss severities. In addition, some of the transactions have failed their delinquency triggers, resulting in reduced--or a complete stop of--unscheduled principal payments to their subordinate classes. However, these transactions allow for unscheduled principal payments to resume to the subordinate classes if the delinquency triggers begin passing again. This would result in an erosion of the credit support available for the more senior classes. Therefore, we affirmed our ratings on certain classes in these transactions 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," 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;An inflation rate of 2.2% in 2016; andAn average 30-year fixed mortgage rate of 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 will cause GDP growth to fall to 1.8% in 2016;Home price momentum will slow 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.