NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Structured Finance Progress Report: U.S. RMBS (Notable Improvements, But Still Rebuilding)
The U.S. RMBS sector has seen some rather substantial improvements of late, though the pace of progress remains slow and challenges remain, according to Fitch Ratings in its latest Structured Finance Progress Report.
Residential mortgage loan underwriting has improved dramatically since the financial crisis, with Managing Director Rui Pereira calling the performance of recent vintage mortgage loans the best on record thus far. 'New legislation has completely eliminated some problem loan types like no documentation loans and has increased the liability of lenders that make irresponsible loans,' said Pereira.
Another notable contrast is the quality of loan-level data available at issuance, which has been expanded and standardized. Third-party review and verification of the loan file documentation prior to issuance has become standard industry practice and is a definite plus for RMBS. These factors allow for more reliable credit analysis and earlier detection of negative credit trends.
That said, there are areas that still require close attention. Among them are the long-debated issue of reps and warranties in new deals. 'While there have been notable improvements for rep and warranty enforceability, a lack of standardization across transactions is keeping investors wary,' said Pereira. The sector also remains vulnerable to political and regulatory risk, namely outside-of-trust settlements and government actions that affect cash flow to investors.
This U.S. RMBS progress report is the latest in a series Fitch plans to publish globally that discuss significant changes a sector has undergone since the financial crisis. Fitch plans to continue expanding its series throughout the year and devote attention to those sectors where the changes have been most radical.
Fitch's 'Structured Finance Progress Report: U.S. RMBS' is available at 'www.fitchratings.com' or by clicking on the above link.
Additional information is available at 'www.fitchratings.com'.