[1]Moody's Investors Service [2] on Thursday announced [3] the upgrading of 11 tranches from 3 transactions backed by conforming balance residential mortgage-backed securities issued by Fannie Mae and Freddie Mac totaling about $1 billion.
According to Moody's, the upgrades are a result of the recent performance of the underlying pools of loans. The actions also reflect Moody's updated default projections for the pools and the build-up of credit enhancement. Two of the transactions are from Freddie Mac's Structured Agency Credit Risk series (STACR 2013-DN2 and STACR 2014-DN1) and one is from Fannie Mae's Connecticut Avenue Series (CAS 2014-C01). All three transactions are designed to provide credit protection for their respective issuers against the performance of reference pools of prime first-lien conforming mortgages.
The note holders for these transactions are not entitled to receive cash from the mortgage loans in the reference pools, unlike typical RMBS transactions. Rather, the performance of the mortgage loans in the reference pool determines the timing and amount of principal and interest the GSEs are obligated to pay on the notes.
"The rating actions also reflect an increase in credit enhancement to the subordinate bonds due to sustained and rising prepayment rates on the underlying pools."
The upgrades by Moody's on the three transactions reflect low serious delinquencies (90 days or more overdue) and credit events for the reference pools since issuance, according to Moody's. A credit event occurs when a mortgage loan in the reference pool becomes 180 days or more delinquent or when a mortgage loan in the reference pool is involuntarily disposed). According to Moody's, credit events remain below 1 basis point of the original pool balances for all three transactions.
"The rating actions also reflect an increase in credit enhancement to the subordinate bonds due to sustained and rising prepayment rates on the underlying pools," Moody's said. "The senior subordinate classes in all three transactions also benefit a sequential allocation of payments among the subordinate bonds."
Credit enhancements for the three transactions are as follows: Enhancement to Class M-1 in STACR 2013-DN2 has risen from 1.95 percent to 2.22 percent as of issuance; for STACR 2014-DN1, Class M-1 credit enhancement has risen from 3.50 percent to 3.94 percent as of issuance, and credit enhancement to Class M-2 and Class M-12 has risen from 2.00 percent to 2.25 percent as of issuance; to Class M-1 in CAS 2014-C01, the credit enhancement has risen from 1.65 percent to 1.86 percent as of issuance.
The complete rating action is as follows, according to Moody's:
- Issuer: Connecticut Avenue Securities, Series 2014-C01
- Class M-1, Upgraded to A3 (sf); previously on Jan 27, 2014 Definitive Rating Assigned Baa2 (sf)
- Issuer: Structured Agency Credit Risk (STACR) Debt Notes, Series 2013-DN2
- M-1, Upgraded to A2 (sf); previously on Nov 12, 2013 Definitive Rating Assigned Baa1 (sf)
- M-1F, Upgraded to A2 (sf); previously on Nov 12, 2013 Definitive Rating Assigned Baa1 (sf)
- M-1I, Upgraded to A2 (sf); previously on Nov 12, 2013 Definitive Rating Assigned Baa1 (sf)
- Issuer: Structured Agency Credit Risk (STACR) Debt Notes, Series 2014-DN1
- M-1, Upgraded to Aa3 (sf); previously on Feb 12, 2014 Definitive Rating Assigned A1 (sf)
- M-1F, Upgraded to Aa3 (sf); previously on Feb 12, 2014 Definitive Rating Assigned A1 (sf)
- M-1I, Upgraded to Aa3 (sf); previously on Feb 12, 2014 Definitive Rating Assigned A1 (sf)
- M-2, Upgraded to A3 (sf); previously on Feb 12, 2014 Definitive Rating Assigned Baa1 (sf)
- M-2F, Upgraded to A3 (sf); previously on Feb 12, 2014 Definitive Rating Assigned Baa1 (sf)
- M-2I, Upgraded to A3 (sf); previously on Feb 12, 2014 Definitive Rating Assigned Baa1 (sf)
- M-12, Upgraded to A2 (sf); previously on Feb 12, 2014 Definitive Rating Assigned A3 (sf)