OREANDA-NEWS. The rating implications of including a Deal Agent (DA) in a U. S. RMBS transaction will likely be modest, according to a recent report by Fitch Ratings.

Fitch's analysis estimates adjustments to credit enhancement using various hypothetical fee arrangements and is intended to further market discussion on the inclusion of a DA, which has yet to be included in a U. S. RMBS transaction of newly originated loans.

While details of an actual DA fee arrangement remain unknown, Fitch currently expects the cost to have a modest effect on credit enhancement levels. For prime jumbo, Fitch anticipates the rating cost will be within a rounding margin and is unlikely to affect credit enhancement. Fitch anticipates the rating cost to be greater for non-prime pools but still modest relative to absolute credit enhancement levels. In a hypothetical scenario with assumptions Fitch believes to be conservative, the rating cost is estimated to be less than 50 basis points at the 'AAAsf' level for a non-prime transaction.

Additionally, the cost may be offset by a benefit to projected mortgage losses for some transactions. The rating benefit for an acceptable DA will be realized in the transaction's representation and warranties framework (R&W) assessment. The expected loss benefit at the 'AAAsf' level will likely be modest or immaterial for most transactions. However, the benefit may be as large as 25 basis points for a prime jumbo RMBS and 100 basis points for a non-prime RMBS. Fitch continues to consider ways to value the potential benefit from the servicer oversight function.

A number of structural improvements have been implemented in post-crisis U. S. RMBS. That said, many investors still seek the introduction of a DA within the transaction to increase transparency and to protect the interests of all bondholder classes. The proposed responsibilities of the DA include investor reporting reconciliation, servicer oversight and R&W enforcement.

Significant progress on the concept has been made by the Structured Finance Industry Group's (SFIG) RMBS 3.0 Task Force, the Treasury Department's Private Label Securities initiative and the Association of Institutional Investors. But the inclusion of a DA will likely be decided by the economics and, ultimately, investor demand.

Fitch expects to conduct operational reviews of DAs to assess their ability to perform their designated responsibilities and functions. Fitch's approach to reviewing DAs is described in its U. S. RMBS Master Rating Criteria report published last month. While the rating analysis of a DA fee arrangement will likely be able to rely on existing rating criteria, Fitch may need to establish new rating methodologies once the details of an actual fee arrangement are known.