subprime RMBS

Rating Agency Developments

On January 7, Moody’s published its approach to rating RMBS servicer advance facilities. The rating criteria include: (i) review of the servicer, including assessments of its advance and reimbursement tracking systems and organizational infrastructure, (ii) utilization of servicer-specific historical data on advance reimbursements to determine appropriate stress scenarios and credit risk, (iii) assessment of whether the receivables backing the servicer advance facility are isolated from the bankruptcy risk of the servicer, and (iv) consideration of whether there is a clear alignment of interest between the servicer and the investors.  Moody’s Report.

On January 8, Moody’s issued a new report for rating U.S. floorplan ABS.  Under this approach, Moody’s uses a model to simulate losses based on outcomes related to key risk drivers such as manufacturer or dealer default, payment rates, and economic conditions, supplemented by a static scenario analysis for manufacturers with sub-investment grade ratings, to assess whether Aaa bonds will be resilient to downgrades below investment grade in highly stressed scenarios.  Moody’s also evaluates qualitative factors including the capability and stability of the loan servicer.  Moody’s Release.  Moody’s Report.

On January 8, Moody’s explained its approach to rating securitizations backed by U.S. private student loans.  Moody’s notes that since private student loans do not benefit from a federal guarantee and instead rely on the borrowers’ and co-signers’ credit for repayment, the methodology for rating private student loan securitizations differs significantly from those involving federally insured loans.  Moody’s Release.  Moody’s Report. 

On January 12, Moody’s changed its approach to monitoring credit arbitrage ABCP programs.  The changes are incorporated in the latest version of its public CDO rating model, CDOROM.  Moody’s Release.

On January 13, Moody’s published updates to its methodology on variable rate instruments supported by third party liquidity providers. The changes include updates to the immediate termination or suspension events section of the methodology and effect the assignment of short-term ratings to variable rate demand obligations and commercial paper. Moody’s Report.

On January 13, Moody’s published revised loss projections for some U.S. subprime RMBS issued between 2005 and 2007.  Moody’s Release.

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