Wednesday, October 04, 2006

New Fitch U.S. RMBS Criteria & Default Model: The Catalysts of U.S. Mortgage Defaults

das könnte ein weitere kleiner schritt in richtung risikogerechter kreditvergabe sein. fitch erneuert seine ratingmethoden für die mortage back securities (mbs). denke das denen zum einen die höheren ausfallraten zu denken gegeben haben und zum anderen evtl. auch die neuen richtlinien ne rolle spielen.

dank geht an john von

New Fitch U.S. RMBS Criteria & Default Model: The Catalysts of U.S. Mortgage Defaults

In a U.S. housing market that continues to show increased weakness, Fitch Ratings 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. 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 versus LTV 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.



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