OREANDA-NEWS. March 12, 2015. Fitch Ratings has downgraded two and affirmed 14 tranches of four FTA UCI transactions, a series of Spanish RMBS originated and serviced by the specialist lender Union de Creditos Immobiliarios (not rated). A full list of rating actions is available at the end of this commentary.

KEY RATING DRIVERS
Increasing Mortgage Renegotiations
Since 2009 the servicer has actively managed borrowers facing financial hardship through loan renegotiations, which currently constitute a large proportion of the underlying portfolios. The renegotiations allow reducing the current instalment for a certain period of time set on a case-by-case basis. Fitch observes that, over the transaction's life, renegotiations have been applied to between 46.5% (UCI 15) and 53.7% (UCI 17) of the current pool. To date, the proportion of loans currently under reduced instalment represent between 31% (UCI 14) and 36.7% (UCI 17) of the current pool, compared to a range between 27.5% (UCI 14) and 32.75% (UCI 17) 12 months ago.

In its analysis Fitch has assigned more conservative assumptions to modified loans since historically these mortgages have shown a higher roll-through-default rate. The analysis showed that despite the additional stresses applied the current credit enhancement available to UCI 14 and 15 was sufficient to withstand such stresses. In contrast, for UCI 16 and 17, the combination of the additional stresses, general underperformance of the portfolios and insufficient credit enhancement led to the downgrades of the senior notes.

Weak Asset Performance
The increased renegotiations have helped borrowers to exit the late stage arrears status and revert to performing or early stage arrears, while the flow of new defaults has been continuous. The interaction of these factors has led to a drop in the pipeline of late stage arrears (loans with at least three monthly instalments overdue), currently reported between 7.3% (UCI 14) and 8.9% (UCI 17) of the current pool. Fitch notes the portfolio deterioration has been more pronounced in UCI 16 and 17, where the available excess spread, despite healthy, has been insufficient to provision the large volume of defaulted claims. This has led to a higher volume of un-provisioned defaults (PDL), respectively 4.8% and 6.1% of the current note balance in UCI 16 and 17.

Fitch expects that the portfolio deterioration will continue and be particularly pronounced in UCI 16 and 17. These transactions are likely to experience increasing PDLs and dropping credit support, as factored in the downgrading of the senior notes respectively to 'Bsf' and 'CCCsf'. Meanwhile, current credit support in UCI 14 and 15 is deemed sufficient to withstand current rating and, as a result, notes have been affirmed with Stable Outlooks on the senior tranches.

RATING SENSITIVITIES
Portfolio deterioration and consequent reduction in available excess spread and/or a larger volume of loans renegotiations beyond Fitch's stresses would trigger negative rating actions.

The rating actions are as follows:

Fondo de Titulizacion de Activos UCI 14:
Class A (ISIN ES0338341003) affirmed at 'BBsf'; Outlook revised to Stable from Negative
Class B (ISIN ES0338341011) affirmed at 'Bsf'; Outlook Negative
Class C (ISIN ES0338341029) affirmed at 'CCCsf'; Recovery Estimate of 0%

Fondo de Titulizacion de Activos UCI 15:
Class A (ISIN ES0380957003) affirmed at 'BBsf'; Outlook revised to Stable from Negative
Class B (ISIN ES0380957011) affirmed at 'Bsf'; Outlook Negative
Class C (ISIN ES0380957029) affirmed at 'CCsf'; Recovery Estimate of 0%
Class D (ISIN ES0380957037) affirmed at 'CCsf'; Recovery Estimate of 0%

Fondo de Titulizacion de Activos UCI 16:
Class A2 (ISIN ES0338186010) downgraded to 'Bsf' 'BB-sf'; Outlook Negative
Class B (ISIN ES0338186028) affirmed at 'CCCsf'; Recovery Estimate of 0%
Class C (ISIN ES0338186036) affirmed at 'CCsf'; Recovery Estimate of 0%
Class D (ISIN ES0338186044) affirmed at 'CCsf'; Recovery Estimate of 0%
Class E (ISIN ES0338186051) affirmed at 'Csf'; Recovery Estimate of 0%

Fondo de Titulizacion de Activos UCI 17:
Class A2 (ISIN ES0337985016) downgraded to 'CCCsf' from 'Bsf'; Recovery Estimate of 95%
Class B (ISIN ES0337985024) affirmed at 'CCsf'; Recovery Estimate of 0%
Class C (ISIN ES0337985032) affirmed at 'CCsf'; Recovery Estimate of 0%
Class D (ISIN ES0337985040) affirmed at 'Csf'; Recovery Estimate of 0%