OREANDA-NEWS. Fitch Ratings has updated its approach for rating residential mortgage-backed securities (RMBS) backed by seasoned and re-performing loan (RPL) collateral. The proposed criteria are detailed in its report published today, which replaces the Nov. 21, 2014 report "U.S. RMBS Re-Performing Loan Criteria".

The key changes made to existing criteria include the increase of the due diligence sample size expected for compliance and data integrity to 100% from 20% for RPLs. If 100% due diligence is not conducted, Fitch may adjust its loss expectations, cap the rating, or decline to rate the transaction. In addition, the lack of advancing associated with seasoned and RPL deals calls for cash flow analyses that demonstrate full and timely interest for high investment-grade rated classes. The changes contemplated by the new criteria will not have an impact on existing RPL ratings as all but one transaction rated by Fitch has had 100% due diligence, and cash flow analyses indicated full and timely payment of interest for high IG rated bonds.

Fitch analyzes the key risk drivers of the RPL asset class using its mortgage loan loss model, and existing representation (rep) and warranty and due diligence review criteria. However, since the existing methodologies were developed with a focus on newly originated and seasoned performing (portfolio) collateral, RPL pools and some seasoned performing pools (i.e. loans aged over 24 months that have not been modified) purchased in the secondary market are likely to have factors that require additional considerations or an alternative approach to that described in Fitch's "US RMBS Master Rating Criteria".