Fitch Rates Nomura Resecuritization Trust 2015-2R
Group 1 Securities
--\$12,440,000 class 1A1 'BBBsf'; Outlook Stable;
--\$3,110,000 initial exchangeable class 1A2 not rated;
--\$2,745,000 initial exchangeable class 1A3 not rated;
--\$5,855,041 subsequent exchangeable class 1A4 not rated.
Group 5 Securities
--\$10,080,000 class 5A1 'BBBsf'; Outlook Stable;
--\$2,708,000 initial exchangeable class 5A2 not rated;
--\$2,257,375 initial exchangeable class 5A3 not rated;
--\$4,965,375 subsequent exchangeable class 5A4 not rated.
Group 6 Securities
--\$12,509,000 class 6A1 'Asf'; Outlook Stable;
--\$1,706,000 class 6A2 'BBBsf'; Outlook Stable;
--\$4,548,000 initial exchangeable class 6A3 not rated;
--\$4,834,000 initial exchangeable class 6A4 not rated;
--\$4,833,163 initial exchangeable class 6A5 not rated;
--\$9,382,000 subsequent exchangeable class 6A6 not rated;
--\$9,667,163 subsequent exchangeable class 6A7 not rated;
--\$14,215,163 subsequent exchangeable class 6A8 not rated.
NMRR 2015-2R is comprised of six groups. Fitch is rating four bonds from three of the groups. Each group is a resecuritization of an ownership interest in a residential mortgage-backed security. As a resecuritization, the securities will receive their cash-flow from the underlying security. The Fitch-rated groups are collateralized with a senior class from Alt-A transactions issued from 2006 to 2007. Collateral performance has shown improvement over the past few years. The underlying pools have exhibited significant declines in the percentage of loans seriously delinquent. Also, the percentage of loans transitioning from current to delinquent has slowed as well.
For the Fitch rated groups, interest is paid pro rata and principal is paid sequentially. Realized losses are applied reverse sequentially.
KEY RATINGS DRIVERS
Key rating drivers include the performance of the underlying pool as well as the collateral characteristics, such as sustainable loan-to-value ratio (sLTV), credit score and geographic concentration. For the Fitch rated groups, Fitch ran various prepayment speeds and loss timing scenarios in its analysis of the deal structure. This analysis was done to determine that the cash flow to the Fitch rated bonds would not be exposed to losses as a result of potential alternative cash flow timing stress scenarios.
Group 1 represents a 9.59% interest in the WaMu Mortgage Pass-Through Certificates Series 2006-AR9 Trust class 1A. Based on the collateral composition of the Group 1 underlying pool, Fitch assumed a base-case scenario expected loss (XL) of 18.23%. In the rating stress scenarios, Fitch assumed a 'BBBsf' XL of 31.87%. Fitch increased the model-expected loss severity on liquidated loans by 10% at each rating scenario to better reflect recent loss severity trends. Fitch ran these loss assumptions through 12 different interest rate, prepayment and timing scenarios and used the most conservative value to determine the required credit enhancement (CE). The required CE to support a 'BBBsf' rating is 31.97% in addition to the remaining CE available to the underlying bond.
Group 5 represents a 8.69% interest in the WaMu Mortgage Pass-Through Certificates Series 2007-OA3 Trust class 2A. Based on the collateral composition of the Group 5 underlying pool, Fitch assumed a base-case scenario XL of 20.11%. In the rating stress scenarios, Fitch assumed a 'BBBsf' XL of 33.43%. Fitch increased the model-expected loss severity on liquidated loans by 10% at each rating scenario to better reflect recent loss severity trends. Fitch ran the loss assumptions through 12 different interest rate, prepayment and timing scenarios and used the most conservative value to determine the required credit enhancement (CE). The required CE to support a 'BBBsf' rating is 32.46% in addition to the remaining CE available to the underlying bond.
Group 6 represents a 12.95% interest in the Countrywide Home Loans Alternative Loan Trust 2007-HY6 class A1. Based on the collateral composition of the Group 6 underlying pool, Fitch assumed a base-case scenario XL of 32.45%. In the rating stress scenarios, Fitch assumed an 'Asf' XL of 54.86% and a 'BBBsf' XL of 48.83%. Fitch increased the model-expected loss severity on liquidated loans by 10% at each rating scenario to better reflect recent loss severity trends. Fitch ran the loss assumptions through 12 different interest rate, prepayment and timing scenarios and used the most conservative value to determine the required CE. The required CE to support an 'Asf' rating is 55.14% and a 'BBBsf' rating is 49.2%.
Fitch is assigning the ratings based on underlying pool collateral composition, the results of its cashflow analysis, review of final structure and supporting deal documents.
RATING SENSITIVITIES
Fitch analyzes each bond in a number of different scenarios to determine the likelihood of full principal recovery and timely interest. The scenario analysis incorporates various combinations of the following stressed assumptions: mortgage loss, loss timing, interest rates, prepayments, servicer advancing and loan modifications.
The 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 outcomes. 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.
For further information, see Nomura Resecuritization Trust 2015-2R Representations and Warranties Appendix, dated March 6, 2015.
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