Fitch Cites Benefits of Bush Loan-Mod Plan

Meanwhile, Fitch Ratings responded favorably to the securitization industry's loan modification plan backed by the Bush administration, declaring that it can help reduce the risk of principal loss on subprime residential mortgage-backed securities.Under the voluntary program, mortgage servicers can identify loans that are "good candidates for refinancing" as well as loans that "might be eligible for a 'streamlined' modification process" consisting of a five-year rate freeze, Fitch noted. "Fitch Ratings believes that on balance, by mitigating the impact of [adjustable-rate mortgage] resets on borrower default rates, the framework can help to reduce the risk of principal loss on senior subprime RMBS," the rating agency said. "Increased refinancing opportunities via [the Federal Housing Administration] and other programs are also important to stabilizing default rates. The implications for subordinated RMBS classes are unclear, as they may be exposed to a complex interaction of variables that can be difficult to analyze." Fitch can be found online at http://www.fitchratings.com.