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Fitch, S&P Revise Criteria.(Standard & Poor's Rating Services)
NEW YORK -- With the housing market starting to cool and new loan products gaining a foothold in the market, rating agencies have been busy revising criteria for evaluating the credit risk on deals.
Fitch Ratings recently updated its model for anticipating residential MBS loan defaults, known as ResiLogic.
Glenn Costello, managing director at Fitch, said Fitch is taking a new approach to regional housing markets with the new default model and residential MBS criteria. The study found strong tie-ins between mortgage defaults and combined loan-to-value ratios, FICO scores and market sectors, along with underwriting standards.
"It shouldn't come as a surprise that mortgage delinquency and loss has a strong inverse relationship with home price appreciation," Mr. Costello said during a conference call to discuss the new model. He said the research shows that servicers with better ratings have lower loss severities than other servicers.
Fitch analyzed some 1.6 million prime, alt-A and subprime mortgage loans originated between 1992 and 2000 in creating ResiLogic. That research yielded a few surprises.
For instance, 34% of prime loans liquidated after a default result in no loss at all, because equity from the home sale covers all outstanding loan interest and principal shortfalls.
About 16% of alt-A liquidations result in no loss, while only about 8% of subprime liquidations experience no loss, according to Fitch. Rising home prices of course contributed to the low loss rate on some liquidations.
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Source: HighBeam Research, Fitch, S&P Revise Criteria.(Standard & Poor's Rating Services)