'Scratch & Dent' Performing Well

Scratch-and-dent transactions, which are becoming more commonplace in the U.S. residential mortgage-backed securities arena, have generally performed up to expectations, according to Fitch Ratings.

In a special report titled "Scratch

& Dent: This Is Not Your Father's MBS," the rating agency reports that it has analyzed 36 transactions from 15 issuers in the first three quarters of 2005, totaling almost $7 billion (a 436% increase from the level recorded two years ago).

"Scratch-and-dent transactions have generally performed at expectations, due in part to RMBS servicers' workout and liquidation procedures, as they directly affect loan recoveries," said Vincent Barberio, a Fitch managing director. "Subprime and special servicers are generally best-suited to service pools of distressed loans because they typically deal with a greater number of poorly performing loans and have adequate tools in place to handle them."

The combinations of collateral any one scratch-and-dent pool can contain make it hard to compare such deals, and therefore it is important to analyze each transaction individually, Fitch said.

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