Fitch Updates Loss Mitigation Model

In response to greater availability of mortgage data and changing underwriting practices, Fitch Ratings has introduced a new foreclosure and loss model designed to give investors a more accurate picture of risk within a pool of residential mortgage-backed securities.Fitch said the new loan-level model, version 5.0, evaluates frequency of foreclosure and loss severities based on individual loan characteristics and regional economic forecasts. The new model replaces 11 loan documentation categories with four for easy comparison of credit risk, Fitch said. "Analysis showed that the incremental difference in credit risk for individual loans was not significant enough to merit additional categories," said Susan Kulakowski, a Fitch senior director. Under the new model, loans will be classified in these four documentation categories: full, alternative, reduced, and none. The rating agency can be found online at http://www.fitchratings.com.