Moody’s Retools Assessments of “Seasoned” RMBS

Moody’s Investment Services revised its approach to originator assessments for US residential mortgage backed securities (RMBS) backed by “seasoned” loans. The announcement cited the inability to obtain payment histories and other updated loan data from collapsed orginators. Instead of obtaining this data or reviewing outdated practices of orginators that still stand, Moody’s altered its targeted criteria in order to better gauge the loan quality, according to the announcement. Moody’s will look to obtain a minimum 12-month pay history of the “seasoned” loan in order for the loan to be eligible for an investment grading. Moody’s would consider a pay history less than 12 months, but that loan will most likely not receive a rating. Also, updated property values are required for the “seasoned” loans. Automated valuation models (AVM), broker price opinions (BPO) or form appraisals qualify. The date of the updated property value will also be provided to Moody’s, and will be no older than 120 days upon submission, according to the announcement. Updated FICO scores, occupancy, modification information, reserves at the tie of closing and the job title and industry of the borrower will be required for a rating. Moody’s revisions come amid continued downgrades of RMBS by credit-rating agencies like Moody’s and Fitch Ratings. The downgrades forced regulators to bolster capital requirements on insurance companies — like life insurance companies — that hold RMBS bonds as investments. The American Council of Life Insurers (ACLI) sent a proposal to the National Association of Insurance Commissioners to modify current ratings for RMBS as well as  risk-based capital requirements. “To overcome this rating deficiency we recommend a rating proposal that recognizes both the likelihood of loss and the severity of loss,” the proposal reads. “Life companies will appropriately hold more RBC [risk based capital] than before the recent RMBS downgrades, but will not be subjected to volatile RBC requirements primarily based on the first dollar of loss ratings methodology.” Write to Jon Prior.