Fitch Explains Standardized Borrower Grades

Fitch Ratings has published a report on its standardization of originators' borrower grades, the first in a series of articles explaining its rating criteria for residential mortgage-backed securities."Whereas RMBS originators use underwriting guidelines to segregate borrowers into various risk categories, Fitch's approach involves standardizing the underwriting guidelines that help determine borrower risk by identifying five major components and correlating them into four discernible borrower grade groups," said Sarbashis Ghosh, a Fitch senior director. "These components highlight the clearest distinction of borrower risk and eliminates the noise generated from the vast multitude of differing originator-assigned grade labels." The five categories designated by Fitch are: prior mortgage pay history, pay history of nonmortgage debt, foreclosure and bankruptcy experience, chargeoffs, and debt-to-income ratios. Its borrower grades are A, A-minus, B, and C. The report is titled "Good Grades Supplement LTVs and Credit Scores." Fitch can be found online at http://www.fitchratings.com.