Moody’s takes actions on $17.7m RMBS

Global rating agency Moody’s has confirmed the rating of two tranches and affirmed the rating of four tranches from two transactions, backed by Alt-A loans, issued by Credit Suisse First Boston in 2002 and 2004. The actions are a result of recent performance review of these deals and reflect Moody’s updated loss expectations on these pools.

Today’s rating actions constitute of a number of confirmations and affirmations. The confirmations on the two tranches are due to the strong interest shortfall reimbursement mechanism in the subordinated tranches. Previously, Moody’s had placed these two tranches on review for downgrade due to the interest shortfall reimbursement risk. However, per the pooling and servicing agreement these mezzanine tranches do not have a subordinated interest shortfall reimbursement.

As a result of an extension of the Home Affordable Modification Program (HAMP) to 2013 and an increased use of private modifications, Moody’s is extending its previous view that loan modifications will only occur through the end of 2012. It is now assuming that the loan modifications will continue at current levels until the end of 2013. The above RMBS approach only applies to structures with at least 40 loans and pool factor of greater than 5%. Moody’s can withdraw its rating when the pool factor drops below 5% and the number of loans in the deal declines to lower than 40. If, however, a transaction has a specific structural feature, such as a credit enhancement floor, that mitigates the risks of small pool size, Moody’s can choose to continue to rate the transaction. Please refer further to Moody’s Investors Service’s Withdrawal Policy, which can be found on our website, www.moodys.com.

For pools with loans less than 100, Moody’s adjusts its projections of loss to account for the higher loss volatility of such pools. For small pools, a few loans becoming delinquent would greatly increase the pools’ delinquency rate.

To project losses on Alt- A pools with fewer than 100 loans, Moody’s first calculates an annualized delinquency rate based on vintage, number of loans remaining in the pool and the level of current delinquencies in the pool.

For Alt-A pools, Moody’s first applies a baseline delinquency rate of 10% for 2004, 5% for 2003 and 3% for 2002 and prior. Once the loan count in a pool falls below 76, this rate of delinquency is increased by 1% for every loan fewer than 76. For example, for a 2004 pool with 75 loans, the adjusted rate of new delinquency is 10.1%. Further, to account for the actual rate of delinquencies in a small pool, Moody’s multiplies the rate calculated above by a factor ranging from 0.50 to 2.0 for current delinquencies that range from less than 2.5% to greater than 30% respectively.

The above RMBS approach only applies to structures with at least 40 loans and pool factor of greater than 5%. Moody’s can withdraw its rating when the pool factor drops below 5% and the number of loans in the deal declines to lower than 40. If, however, a transaction has a specific structural feature, such as a credit enhancement floor, that mitigates the risks of small pool size, Moody’s can choose to continue to rate the transaction.Moody’s then uses this final adjusted rate of new delinquency to project delinquencies and losses for the remaining life of the pool under the approach described in the methodology publication.