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Fitch's Five Factors

Components of RMBS grading

February 2, 2005

By MortgageDaily.com staff


In the first of a series of articles explaining its credit criteria, Fitch Ratings discussed the five factors it utilizes to grade residential-mortgage backed securities.

The debut report, Good Grades Supplement LTVs and Credit Scores of the RMBS Model Series, outlines Fitch's approach for deriving borrower grades and their application in its RMBS rating model. Borrower grades are one of the secondary indicators of default, and Fitch's approach standardizes originators' varying borrower risk grades by analyzing components found in most of the industry's underwriting guidelines.

"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," expl