NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Exposure Draft: U.S. RMBS Loan Loss Model Criteria
Fitch Ratings has announced several proposed enhancements to its U.S. RMBS loan loss model criteria. The changes are detailed in an exposure draft published today. Fitch is inviting feedback on its proposed approach.
For newly issued RMBS pools, the proposed enhancements will likely result in modestly higher projected losses at high investment grade rating categories and modestly lower projected losses at non-investment grade categories. Losses for seasoned legacy RMBS pools will generally decrease. Fitch expects:
--No rating implications for recently- issued pools;
--Modestly negative rating pressure for some pre-2005 legacy Prime RMBS; and
--Generally positive rating momentum for legacy subprime RMBS.
Fitch expects to review all legacy RMBS within six months of release of the new loss model criteria.
The model's core methodology has not materially changed. However, several key enhancements have been made to incorporate Fitch's updated Sustainable Home Price (SHP) model and better reflect recent probability of default [PD] and loss severity [LS] trends.
Fitch has recalibrated the regression-based PD model to reflect recent enhancements to Fitch's proprietary SHP model. This update resulted in a stronger relationship between PD and Fitch's sLTVmetric, which measures the borrower's equity in the home, and is expected to result in modestly higher PD levels in high investment grade rating categories, or for pools with high sLTVs. In addition, Fitch expects a modest reduction in projected loss severities at all rating categories as a result of updated market value decline assumptions.
Fitch has made several enhancements that primarily affect its analysis of seasoned legacy RMBS. Among these changes are the use of sLTV in non-prime regression analysis, revisions to PD adjustments for delinquent loans, enhancements to the quick-sale adjustment assumption, and a modification to the economic risk factor variable used in application. A full description of all changes can be found in the exposure draft.
Fitch is accepting comments on its Exposure Draft until October 31. Comments should be sent to 'email@example.com'.
'Exposure Draft: U.S. RMBS Loan Loss Model Criteria' is available at 'www.fitchratings.com' or by clicking on the above link.
Additional information is available at 'www.fitchratings.com'.