New Fitch U.S. RMBS Criteria & Default Model: The Catalysts of U.S. Mortgage Defaults.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- In a U.S. housing market that continues to show increased weakness, Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has identified three major predicators of mortgage loan defaults (FICO scores, credit sector and combined loan-to-value ratios (CLTVs)), all of which will be emphasized in both new criteria and a loan default model. The criteria is documented in a new report released today. Fitch will also be making its model publicly available to market participants as part of its efforts to bring greater transparency to Fitch's rating methodology. Fitch's criterion identifies 13 distinct mortgage credit dimensions in order to project loan level defaults. Fitch also incorporates national and regional economic stress factors to reflect the varying levels of risk in different regions. Fitch's criteria, based on decades-worth of historical data, demonstrate that FICO score continues to be the best single indicator of mortgage default risk. Fitch further determined that the underwriting standards that lenders use to distinguish between Prime, Alt-A and Subprime borrowers have a substantial influence on default and loss. Fitch's research further confirms that low homeowner equity reduces borrower incentive to avoid foreclosure foreclosure Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. . Additionally, Fitch's criteria report cites occupancy, loan purpose and documentation type as important risk dimensions. Fitch's new model is based on actual historical loss severity data, rather than projections of home price movements and expenses. The model provides insight into which loan attributes are predictive of higher loss severity, and fully captures the difference in severity among the various credit sectors. Fitch's analysis also found that Fitch Servicer Ratings are good indicators of risk. Fitch tested the new model against over 700 pools that had been previously evaluated throughout this year. Among its findings include: --The model's high weighting of FICO FICO See: Financing corporation versus LTV LTV See: Loan-to-value ratio Changes is most noticeable at the extreme ranges of the subprime mortgage spectrum. Very low FICO loans are assigned higher FOFs even with a relatively low LTV. High LTV loans are not treated as harshly when accompanied by relatively high FICOs; --The model generates higher average loss severities than previously, reflecting historical experience, and does not differentiate to the same degree between fixed and hybrid ARM loan severity, therefore subprime fixed loan loss expectations will be more like those for hybrid ARMs. ResiLogic: New U.S. RMBS RMBS Residential Mortgage-Backed Securities RMBS Rambus, Inc. (NASDAQ stock symbol) RMBS Russian Mortgage-Backed Securities Loan Default Model: ResiLogic, the public version of Fitch's new default model, is designed to estimate the expected loss of residential mortgage pools at all rating levels in accordance with Fitch's rating criteria, and is Fitch's latest effort to bring greater transparency on Fitch's ratings and processes to the marketplace. ResiLogic is virtually identical to the model used by Fitch analysts to rate mortgage pools, and is intended to be a risk pricing tool for estimating credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing requirements for RMBS transactions, performing best-execution analysis when structuring a transaction and helping establish loan loss reserve levels for portfolios of residential mortgage loans. ResiLogic will be available for beta testing (programming) beta testing - Testing a pre-release (potentially unreliable) version of a piece of software by making it available to selected users. This term derives from early 1960s terminology for product cycle checkpoints, first used at IBM but later standard throughout the beginning on Nov. 6. Fitch incorporates INTEX DealMaker deal·mak·er n. One that makes deals, as in business, finance, or politics. deal  mak technology for its cash flow modeling assumptions, in conjunction with its implementation of ResiLogic. Originators, issuers, underwriters and asset managers will have access to Fitch's loan-level default and loss analysis. Fitch will be discussing its new RMBS model in more detail during a webcast to take place on Thursday Oct. 12 (separate release to follow shortly). The new criteria report 'ResiLogic: U.S. Residential Mortgage Loss Model' is available on the Fitch Ratings web site at www.fitchratings.com. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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