DBRSreleased an updated methodology for rating U.S. RMBS that combines the previously published individual RMBS methodologies as well as related updates on default frequency, loss severity, cash flow and net interest margin securitizations.
The methodology also covers a section on the rating process for the re-securitization of real estate mortgage investment conduits or ReREMICs.
The U.S. RMBS rating methodology reflects the following analytical considerations:
(1) Operational Risk Assessments: The rating agency assesses the operational risk by evaluating the quality of the mortgage originator and servicer.
(2) Default Frequency and Loss Severity Analysis: DBRS conducts a loan-level analysis utilizing the DBRS proprietary U.S. RMBS model. The model's output includes the default frequency, loss severity and expected credit losses of a mortgage pool. The results are then reviewed together with the operational risk assessments and are subject to adjustment if necessary.
(3) Cash Flow Analysis: For deals that have excess spread, DBRS performs a cash flow analysis by incorporating dynamic stress assumptions on prepayments, timing of losses and interest rates to estimate the available excess spread for loss coverage.(4) Legal Structure and Opinions: The rating agency reviews the legal structure of the transaction and the associated legal opinions.