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Ratings Agencies Revise Ratings Methods

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Two leading ratings agencies have announced changes to how their ratings are determined. One is revising its approach to rating mortgage servicers, while the other is updating its criteria for rating mortgage securities.

An announcement Friday from Moody’s Investors Service proposes a new approach to rating primary residential mortgage servicers. The change is intended to prevent defaults and maximize recoveries through collections, loss mitigation, foreclosure timeline management and loan administration practices.

The ratings agency is seeking feedback on the proposal, which would impact servicers of prime mortgages, subprime loans and Alt-A product. Servicers of second liens — including home-equity products and home improvement loans — as well as high loan-to-value and manufactured housing loans would also be subject to the revised approach.

The updated approach will augment current loan-level portfolio data by utilizing more readily available additional data from securitization trusts. In addition, performance data from Fannie Mae and Freddie Mac will be used.

Data on re-defaults of modified loans will also be made part of the performance analysis.

Moody’s said that another change will be elevating loan administration to a major evaluation category. Existing major categories include collections, loss mitigation, foreclosure timeline management and servicer stability.

“Implementation of the proposed changes could lead Moody’s to change some [servicer quality] assessments or place some on review for upgrade or downgrade” the New York-based firm said. “Although a change in a servicer’s SQ assessment can have credit implications, it is unlikely in itself to prompt a rating action on any RMBS.”

Another New York-based ratings agency, Fitch Ratings, said Friday that it is updating its criteria for rating residential mortgage-backed securities.

Fitch published an updated RMBS sector specific criteria report outlining the general framework of its analytical approach for assigning ratings to securities backed by both new originations and seasoned loans.

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