Fitch Streamlines and Revamps Foreclosure and Loss Model.

Fitch Ratings has updated its model for forecasting foreclosure frequency and loss severity on loans pooled into residential mortgage-backed securities.

Fitch officials said the new models reflect an increasing availability of mortgage data and changing underwriting practices. Fitch's foreclosure and loss model last saw a major update in 1998.

The new loan level model, version 5.0, evaluates frequency of foreclosure and loss severity based on individual loan characteristics and regional economic forecasts. Fitch says the new model is "less granular and more refined" than the previous model, designating four different categories of loan documentation rather than the previous 11, Fitch said.

Susan Kulakowski, a senior director at Fitch Ratings, said that research indicated the additional segmentation of loans by level of documentation was not adding value to its analysis. She said using just four documentation categories - full documentation, alternative, reduced and none - provides a more transparent methodology, making it easier for investors and issuers to understand the treatment of loans in different categories.

The documentation categories represent data about income, employment, asset and housing payment ...