Fitch Rates Nomura Resecuritization Trust 2015-4R
Group 4 Securities
--\$18,189,000 class 4A1 'BBBsf'; Outlook Stable;
--\$1,399,000 initial exchangeable class 4A2 not rated;
--\$1,865,000 initial exchangeable class 4A3 not rated;
--\$1,866,434 initial exchangeable class 4A4 not rated;
--\$3,264,000 subsequent exchangeable class 4A5 not rated;
--\$3,731,434 subsequent exchangeable class 4A6 not rated;
--\$5,130,434 subsequent exchangeable class 4A7 not rated.
NMRR 2015-4R is comprised of six groups. Fitch is rating one bond from one 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 group is collateralized with a senior class from a Prime transaction issued in 2007. Collateral performance has shown improvement over the past few years. The underlying pool has 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 group, 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 4 represents a 15.23% interest in the Chase Mortgage Finance Trust Series 2007-A1 class 11M1. Based on the collateral composition of the Group 4 underlying pool, Fitch assumed a base-case scenario expected loss (XL) of 8.80%. In the rating stress scenarios, Fitch assumed a 'BBBsf' XL of 20.35%. 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 21.35%.
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.
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