According to the Fitch Ratings 2010 outlook report, U.S. structured finance sectors indicate a significant instability even with recent signs of economic recovery. The Fitch credit rating report also specifies that U.S. consumer heath and unemployment will play an important part in consumer ABS (asset backed securities) performance in 2010. Fitch expects unemployment rates reaching 10.5 percent by mid 2010, credit card charge-off rates at 12 percent, and annualized auto net losses between 2 and 25 percent. However despite regression in ABS security performance, Fitch anticipates that U.S. ratings will remain strong for credit card and auto ABS. Primary concerns for next year were shown in the CMBS (commercial mortgage backed securities) division, where Fitch illustrated the risks associated with protracted illiquidity and refinancing. In the RMBS (residential mortgage-backed securities) sector, increasing delinquencies and losses will counteract financial aid from provisional government assistance programs.

“Negative equity, high re-default rates on modified loans and additional rises in unemployment may deter any positive momentum for RMBS,” said Senior Director Grant Bailey. Fitch assesses that home cost will drop an additional 10 percent nationwide, while modification redefaults will be 50 percent for Prime and 60 to 75 percent on Alt-A and subprime. Recovery rates for distressed prime RMBS is anticipated at 95 percent; jointly, recovery rates for distressed Alt-A RMBS will reach 80 percent while distressed subprime RMBS will see a 50 percent recovery rate. Fitch’s report also acknowledged refinance risk as a main problem for CLOs (collateralized loan obligation). Managing Director Kevin Kendra states, “High yield bond issuance and maturity extensions in 2009 have addressed less than 10% of the leverage loans requiring refinancing by the end of 2014.” He continues, “Traditional bank loan activity will remain challenged as tighter lending standards limit refinancing opportunities to the higher quality borrowers.”