Fitch Sees Need for Criteria Tailored to Option-ARMs.(adjustable-rate mortgage )

NEW YORK -- Pay-option adjustable-rate mortgage loans appear to be in the limelight of both risk analysts and consumer advocates.

Fitch Ratings has started a new rating criteria report that uses "various refinements" in methodology for analyzing U.S. servicers, which was deemed necessary due to "a rapidly evolving residential mortgage banking landscape, coupled with increased regulatory scrutiny."

"Certain product types like option ARMs need special operational focus due to their unique nature and the potential for customer disputes or practices that could be deemed as predatory," said senior director Kathy Tillwitz, in a company release.

The "Rating U.S. Residential Mortgage Servicers" report is available online. Among reasons why the revision was necessary, Fitch noted, is its goal "to keep a closer eye on the increase in predatory lending statutes in recent years," given that the controversial practice concerns not only subprime mortgage lending but also servicing.

"The servicer may be included in a potential suit as attorneys are searching for parties with deep pockets to include in potential settlements," said Ms. Tillwitz.

While the report's core criteria remains unchanged when it comes to products analyzed, Fitch said, "the increased prevalence of specialty products ...