Fitch Ratings has finalized its loan-level model for estimating losses on prime Canadian mortgage pools, which was developed to assess the credit risk of residential loans underlying securities under base and stressed
The finalized framework is “effectively unchanged” from a draft, retaining among key drivers a view that home prices are currently overvalued by about 20% in real terms across Canada (with regional variations) and that real declines that could be as low as 10% due to inflation and price momentum.
The company noted that issuers who “considered Fitch’s approach to be overly conservative” dominated feedback during the comment period on the model, but it does not expect any negative rating impact based on the implementation of the new model to existing covered bonds.
Fitch said it would review cover pools under the new criteria and release research disclosing updated expected losses on cover pools by the end of June.
