S&P Revises Option-ARM Criteria

Meanwhile, Standard & Poor's Ratings Services has announced revised criteria for U.S. option adjustable-rate mortgage loans that increase the required credit enhancement for such loans to account for the default risk stemming from "payment shock."S&P said it will first assess default risk by analyzing the effect of the adjustable interest rates. "Then, to address the potential payment shock to the borrower when the minimum payment is reset to make a fully amortizing principal and interest payment, a 20% increase in foreclosure frequency will be applied," S&P said. Finally, additional foreclosure-frequency adjustments will be applied to loans with FICO scores less than 695. The new option ARM criteria will be effective for all S&P-rated transactions closing on or after Aug. 1, the rating agency said. S&P can be found online at http://www.standardandpoors.com.