NEW YORK--(BUSINESS WIRE)--Fitch Ratings has updated its criteria for estimating losses on U.S. mortgage pools for RMBS transactions, 'U.S. RMBS Loan Loss Model Criteria', to address updates to the treatment of borrower reserves and loan origination channel.
The core principle of the framework remains the interaction between borrower equity and market value declines in determining expected loss for each loan. In addition, the methodology accounts for both loan level attributes and macroeconomic factors in deriving loss expectations.
In the model framework, there is a probability of default benefit given to loans with a high level of borrower liquid reserves. In the updated criteria, a 25% haircut is now applied to the borrower reserves to address the volatility of values associated with some asset types typically included in these calculations. Fitch reserves the right to adjust this haircut or decline to provide any benefit dependent upon a review of a loan's origination practices.
The model differentiates performance between loans originated through retail and non-retail channels, assigning a penalty to loans sourced through non-retail channels. Fitch has updated its criteria to withhold the benefit typically associated with retail loans if Fitch has not conducted a review of the loan's originator.
Fitch does not expect these adjustments to affect any outstanding ratings, but the updated variable treatment may result in more conservative credit enhancements on newly-issued transactions.
This report replaces Fitch's Aug. 9, 2013 report, 'U.S. RMBS Loan Loss Model Criteria'. The methodology is expected to be reviewed again within a year of today's date. The updated criteria report is available by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. RMBS Loan Loss Model Criteria -- Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727095
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