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Fitch Releases Exposure Draft for U.S. RMBS Loan Loss Model Criteria.

New York: Fitch Ratings invites feedback from market participants on a proposed change to the U.S. RMBS loan loss model criteria.

Fitch is proposing to make adjustments to loss severity projections based on a qualitative assessment of the servicer. Currently, there is no adjustment to projected pool losses based on servicer quality. The proposal is to adjust projected loss severity with a 5% credit for servicers with a rating of '1-' or higher and a 5% penalty for servicers with a '3-' or lower. Loss severities are not adjusted for servicers with ratings between these two thresholds.

At the conclusion of the Exposure Draft period and if there are no substantive comments received that alter the proposal, projected mortgage pool losses associated with six servicers will be affected. Three servicers with a rating of '1-' or higher will receive a 5% credit and three servicers with a rating of '3-' or lower will receive a 5% penalty.

Fitch estimates that ratings on approximately 1% of outstanding classes will be affected and most are expected to be one rating category lower. No classes issued after 2008 are expected to be negatively affected.

Separately, Fitch is proposing to update its methodology for calculating mortgage insurance coverage for loans insured by the Federal Housing Administration (FHA) to account for some factors previously not considered, such as the reimbursement of taxes and insurance. Fitch continues to assume insurance claims are paid in an amount equal to 100% of the outstanding principal balance of the mortgage loan plus debenture interest and certain additional costs and expenses subject to HUD's reimbursement caps. The update related to FHA insurance will not result in any rating impact.

Comments should be sent to by April 6, 2018. Fitch will publish on its website any written responses it receives, in full, including the names and addresses of such respondents, unless the response is clearly marked as confidential by the respondent. During the exposure draft period, Fitch will use the proposed approach to assign new ratings but apply the existing criteria to existing ratings.

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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:May 28, 2018
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