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Fitch IBCA Unveils RMBS Web Page: Site Shows Default Probability, Loss Severity According to Region

Within the next month, rating agency Fitch IBCA will add to its Web site a page offering regional economic factors for residential mortgage-backed securities.

As part of a criteria plan put forth in December 1998, the data consists of regional criteria for frequency of foreclosure and housing market-value decline.

It is intended to reflect the impact of current and projected economic conditions in the regions where mortgaged properties are located.

"Two of the things we look at [are] in terms of adjusting default probability on one side, and then loss severity on the other," said Fitch IBCA analyst Ken Higgins. "Basically looking at the regional economic conditions, such as unemployment rates, employment growth, population demographics, etc. And basically from even if you have a loan that looks completely the same, same FICO, same LTV, 30-year fixed, we're still going to have a different expectation of loss, depending on where the property is located."

In compiling this data, the agency determines if a region's housing market is overheated or undervalued. "If it's overheated, our market-value decline assumptions are going to be more severe," Higgins said. While this data seems to indicate that prepayment speeds may be faster in undervalued markets when they start to heat up, the data was not designed for prepayments, but for default and credit risk.

"This is generally part of a larger push that we're trying to make, to both make our criteria more transparent as well as make the market more aware of our economic forecasting part of our loss analysis," Higgins said, adding that the site will be used mainly by investors and investment banks. The data can be accessed at the Residential Mortgage section of www.fitchibca.com.

The data was originally published in a book, which had home-price and foreclosure-rate forecasts for each of the 75 regions Fitch IBCA rates. "The problem is that they get updated every six months, so we wanted a convenient way to give investors the latest figures," said Higgins.

"We may find ways to enhance what's given in these tables as well, depending upon what feedback we get."

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