Fitch Ratings has today updated its originator review criteria for European RMBS deals to acknowledge the key role that originators play in influencing the performance of residential mortgage portfolios.
As part of the process, targeted loan file reviews will be conducted by Fitch to determine whether a loan was originated and underwritten within the originator's stated guidelines.
"The continued aim of the process is to provide increased information to the market regarding originators, their products and how effectively they address and mitigate operational risk," says Mark Wilder, associate director, Fitch's European structured fnance operational risk group. "The focus on originators has increased following the impact of the global credit crunch and subsequent recession, and this process continues to provide detailed insights into originator practices across Europe."
The review process, which was originally launched in February 2007, is still being implemented across Europe with the U.K. and Ireland currently in operation.
The focus on RMBS in other jurisdictions, following the turmoil in credit markets, highlights the significance of a detailed originator review, and the process offers investors enhanced transparency on how mortgage collateral backing deals is being originated.
However, the rating agency's ability to expand the process to other jurisdictions depends on the degree of cooperation and disclosure accepted by originators.
There are inherent risks in all aspects of origination across Europe, primarily regarding the inconsistent application of policies and guidelines, inadequate quality control, fraud and unsophisticated credit scoring systems. These risks can be compounded when lenders are not directly involved in the origination process through the reliance on broker and third-party originators. However, an originator's retail operations, specifically when decentralized, as is typical, in Italy, Spain and countries with developing mortgage markets, face many of the same issues, according to the Fitch report.
The criteria report, called European Residential Mortgage Originator Review Criteria can be accessed through the rating agency's public Web site www.fitchratings.com.