Moody's Plans to Update Prime RMBS Ratings Criteria

Moody's Investors Service is proposing to update its U.S. prime residential mortgage-backed securities ratings approach to take into account additional criteria relevant to seasoned loans, including an evaluation of representations and warranties.

The ratings agency plans to assess deals based on reps and warrants as well as an analysis of an independent third-party review of data quality and an assessment of the originator, consolidating past practices.

The third-party data review aims to uncover, for example, defects the R&Ws aim to cover but do not occur until later in the deal's life.

At least one other ratings agency, Fitch, also recently proposed to update its RMBS model. Fitch plans to assess additional criteria related to seasoned, reperforming loans in some circumstances, including the strength of deals' reps and warrants.

Among the ways Moody's models differs from others is its use of time-varying sensitivities with respect to data related to the credit score, combined loan-to-value ratio and spread at origination, according to the company. This information becomes less relevant and payment history becomes more relevant over time, according to Moody's.

Moody's also seeks to distinguish itself by examining default and prepayment behavior as functions of 12-month projections of house price appreciation.

The ratings agency is seeking feedback on its proposal by Oct. 14.

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