S&P Downgrades Seven Classes from Two Jumbo Reverse Mortgage Transactions

Standard and Poor’s lowered ratings on seven classes from two U.S. residential mortgage-backed securities (RMBS) transactions backed by nonconforming reverse mortgage loan collateral to “BBB” ratings.

According to S&P, the seven downgraded classes from series Securities Corp.’s (SASCO’s) series 2006-RM1 and Structured Asset Securities Corporation Reverse Mortgage Loan Trust 2007-RM1 reflect that the amount of credit enhancement available is not sufficient to cover projected losses under revised stress scenarios for the previous rating levels.

“Factors that contributed to higher projected losses on these transactions include increased market-value decline assumptions, stresses at various constant prepayment rate (CPR) speeds, and declines in home prices over the past few years,” said analysts.


In addition to home price depreciation that already occurred for assets within the pool, S&P will apply an additional 35.0% and 21.0% market-value decline assumption for ‘AAA’ and ‘BBB’ rating scenarios, respectively, over the next three years.  These additional market-value decline assumptions, when aggregated with the current home price depreciation, are consistent with S&P’s market-value decline assumptions of 45.0% and 38.0% for ‘AAA’ and ‘BBB’ rating stresses, respectively

Adding, the transaction’s performance characteristics are unlikely to improve to original levels in the foreseeable future as a result of economic conditions and the current status of the housing market.

At the same time, the S&P placed ratings on two classes from Structured Asset Securities Corp. Reverse Mortgage Loan Trust 2005-RM1 on CreditWatch negative.

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  • While the move is understandable, it certainly does not portend the resuscitation of the proprietary segment of our industry in the near term. While jumbos may not be dead, this shift in classification may scuttle plans for their reintroduction by several firms.

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