Fitch has updated mortgage loss assumptions for Portuguese residential pools to reflect “extreme levels of stress” facing the country. By contrast, revised assumptions for German mortgages capture an improved outlook for the country’s economy, the rating agency said yesterday (Wednesday).

Germany 3 - Portugal 1 (Germany 2006 third place play-off)

The rating agency’s moves were part of a series of revisions to its criteria across Europe that followed overarching updates in June.

With regard to Portugal the rating agency said that a worsening macroeconomic outlook since a residential mortgage backed securities (RMBS) criteria review in February 2010 warranted a revision to the agency’s assumptions across the rating scale.

“Fitch anticipates the increased sovereign risk and fiscal consolidation measures will weigh heavily on the economy and mortgage performance,” it said, citing an increase to base foreclosure frequency assumptions as one of the main changes to its criteria.

It said that the criteria assumptions will be used for rating new and existing RMBS transactions and that the mortgage loss assumptions will also apply to covered bond programmes.

With respect to Germany, however, Fitch said that its updated criteria assumptions are not expected to lead to rating actions on existing RMBS transactions or covered bonds, and that the main changes to certain assumptions focus on lower rating categories.

Eberhard Hackel, director, structured finance, Fitch, said that the rating agency’s analysis reflects positive trends in Germany.

“The macroeconomic environment has improved since the last criteria update in 2010. GDP has recovered faster than expected from its record 2009 decline,” he said. “Similarly, the German labour market was surprisingly resilient. The rise of unemployment stopped well below predicted levels. The unemployment rate has been falling since the summer of 2009 and is expected to decline further.”