S&P Reviews U.S. RMBS Automated Valuation Models.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 25, 2003

Standard & Poor's--Standard & Poor's today affirmed its criteria for validating any automated collateral valuation system used to appraise residential mortgage properties.

Any such system used within a pool of securitized mortgages to be rated by Standard & Poor's must be reviewed and its results incorporated into its ratings criteria. Standard & Poor's reviews a new electronic home valuation tool solely at the request of the vendor.

To begin the testing process, Standard & Poor's provides the vendor with a test portfolio of properties with known sales prices for valuation. The vendor supplies a value for each given property address, and Standard & Poor's analyzes each one for variance to the actual sales price. The ability of the system's user to manipulate the results is also determined and incorporated in the analysis. Investors should be informed that any mortgage pool featuring properties assessed by a system that has not been reviewed by Standard & Poor's may feature appraisal variances that exceed Standard & Poor's standards.

Analysis of nine automated systems were performed:

-- Basis100 (PASS);

-- C&S Marketing (AVM Select);

-- Countrywide Home Loans (CAPES);

-- First American Real Estate Solutions (ValuePoint 4);

-- FISERV CSW Inc. (CASA);

-- FNIS (ValueSure);

-- Freddie Mac (Home Value Explorer);

-- Lender's Service Inc. (LSI Indicator); and

-- MRAC (HPA 2000).

Overall, AVM performance and geographic coverage are converging as shown in the most recent test. The databases are becoming more encompassing, resulting in higher hit rates and greater acceptability of AVM values geographically for all system types.

In addition, hybrid models have become the most prevalent type in the test. Hybrid models utilize both hedonic and house price index approaches. The findings indicate that systems can be extremely accurate for some property characteristics or geographic locales, and inaccurate for others. Given this unpredictability, Standard & Poor's creates system-specific acceptance parameters so that the property values accepted from a system are within an acceptable tolerance range. These parameters are then embedded within Standard & Poor's residential mortgage-backed securities (RMBS) ratings model and its Documentation and Automated Collateral Scoring System (DACSS). DACSS evaluates the attributes of a loan application and the credit quality of a borrower, then assigns alternative documentation and collateral assessment requirements in accordance with Standard & Poor's rating criteria without affecting credit enhancement requirements. If an unapproved automated collateral system is used for loans to be included in pools submitted for rating, Standard & Poor's revises its assumptions regarding loss severity and foreclosure frequency, and higher credit enhancement requirements result.

Copyright (c) 2003, Standard & Poor's Ratings Services