Fitch Sees Need for Criteria Tailored to Option-ARMs
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 like option ARMs in the marketplace is now accounted for."
In addition, Ms. Tillwitz said, "Fitch has also included subservicing and specialty products like manufactured housing, reverse mortgages, tax liens and farm loans." Also, Fitch reported it has updated the treatment of its RMBS servicer ratings following the release of its new rating model, ResiLogic.
According to Ms. Tillwitz, "While servicer rating benefits or risk adjustments will still be incorporated into credit enhancement levels, servicer rating credit will now be incorporated directly into the ResiLogic model for prime, alt-A and subprime mortgages."
Updated features, Fitch said, include the fact that servicers face an ever-changing regulatory environment, especially regarding "expanded reporting requirements focused on increasing the transparency of public structured securities," which resulted in Fitch's change of methodology "to include a determination of each servicer's actions with regard to complying with Reg AB." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com