Fitch: 'Scratch & Dent' Deals Performing Well

Scratch-and-dent transactions, which are becoming more commonplace in the U.S. residential mortgage-backed securities arena, have generally performed up to expectations, according to Fitch Ratings.In a special report titled "Scratch & Dent: This Is Not Your Father's MBS," the rating agency reports that it has analyzed 36 transactions from 15 issuers in the first three quarters of 2005, totaling almost $7 billion (a 436% increase from the level recorded two years ago). "Scratch-and-dent transactions have generally performed at expectations, due in part to RMBS servicers' workout and liquidation procedures, as they directly affect loan recoveries," said Vincent Barberio, a Fitch managing director. "Subprime and special servicers are generally best-suited to service pools of distressed loans because they typically deal with a greater number of poorly performing loans and have adequate tools in place to handle them." The combinations of collateral any one scratch-and-dent pool can contain make it hard to compare such deals, and therefore it is important to analyze each transaction individually, Fitch said. The rating agency can be found online at http://www.fitchratings.com.