Fitch Updates U.S. RMBS Diligence Grading, adds TRID

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: U.S. RMBS Master Rating Criteria

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882350

Fitch Ratings has announced new loan level due diligence grading methodology as part of its newly updated U.S. RMBS Master Criteria.

Key changes to Fitch's diligence criteria include a realignment of items driving 'C' and 'D' grades, and the inclusion of compliance grading for TILA-RESPA integrated disclosure rule (TRID) errors and exceptions. The TRID rule was introduced by the Consumer Financial Protection Board (CFPB) for residential mortgage loan applications received on or after Oct. 3, 2015. Fitch requests that third party review (TPR) firms use 'A' through 'D' grades when reporting diligence findings on credit, property, and compliance reviews for RMBS transactions, the details of which are shown below:

--'A' grades - no exceptions noted and satisfied exceptions;

--'B' grades - non-material exceptions noted have not changed with this criteria update;

--'C' grade - to be assigned when material exceptions are noted;

--'D' grade - to be used exclusively in cases where material loan documentation is missing from the loan files and are not sufficiently complete in order for the TPR firm to perform the basic diligence review.

When reviewing loans specifically for TRID compliance, Fitch expects the TPR firm to determine whether the loans were originated and closed in adherence with TRID rules and regulations. The TPR firms should provide detail of their TRID compliance findings and assessments consistent with SFIG's RMBS 3.0 TRID Compliance Review Scope. Although the CFPB has not yet clarified several areas of the rule, in its criteria update Fitch requests that TPR firms determine whether any findings are deemed more likely to carry 1) statutory damages and assignee liability or 2) assignee liability only.

Loans with unresolved TRID exceptions that carry the risk of statutory damages and assignee liability will be expected to receive 'C' compliance grades from the TPR's and Fitch will assume an additional loss severity impact of $15,500. This is comprised of $10,000 in borrower-incurred attorney fees, $1,500 in trust-incurred attorney's fees and $4,000 in statutory damages. The trust-incurred attorney's fees are in addition to the $5,000 in foreclosure-related expenses that Fitch already assumes for defaulted loans. Loans with missing documentation that prevent an assessment of TRID compliance will receive a 'D' grade. Loans with 'D' grades due to missing TRID documents will receive the same loss adjustment as a 'C' grade and, depending on the significance of the missing documentation, may be subject to additional rating adjustments.

Loans with TRID exceptions that carry a low risk of statutory damages are expected to receive 'B' grades and Fitch will not make an adjustment to its loss severity assumptions. However, Fitch will make additional adjustments to its loss expectations if the TRID compliance results from the TPR review indicate generally heightened operational risk across an entire pool of loans.

Fitch will continue to monitor developments on TRID, including the potential for the CFPB to initiate further related rulemaking in late July 2016.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160627005782/en/

Fitch Ratings
Amit Arora
Director
+1-212-612-7874
Fitch Ratings, Inc., 33 Whitehall Street, New York, NY 10004
or
Roelof Slump
Managing Director
+1-212-908-0705
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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