Fitch Updates U.S. RMBS Loan Loss Model Criteria

NEW YORK--()--Link to Fitch Ratings' Report: U.S. RMBS Loan Loss Model Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=810788

Fitch Ratings has updated its criteria for estimating losses on U.S. mortgage pools for RMBS transactions, 'U.S. RMBS Loan Loss Model Criteria', as part of its annual criteria review.

The core principle of the framework remains the interaction between borrower equity and market value declines in determining expected loss for each loan. In addition, the methodology accounts for both loan level attributes and macroeconomic factors in deriving loss expectations.

Fitch's criteria update includes several enhancements from the previous version. While the model's core methodology has not materially changed, 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.

For newly issued RMBS pools, the 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 with the updated criteria within the next six months.

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 Sustainable Loan to Value (sLTV) metric, 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 report.

Fitch released its proposal for criteria enhancements on September 30th as an Exposure Draft, with a 30-day comment period for market feedback. No material market feedback was received, and no changes were made to the criteria since the 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'.

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Contacts

Fitch Ratings, Inc.
Rui Pereira
Managing Director
+1-212-908-0766
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Grant Bailey
Managing Director
+1-212-908-0544
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings, Inc.
Rui Pereira
Managing Director
+1-212-908-0766
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Grant Bailey
Managing Director
+1-212-908-0544
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com