Freddie Mac amended its investment policy guidelines to include Dominion Bond Rating Service as an approved agency to rate the non-agency securities that it buys and holds in its MBS portfolio. This decision affects all of Freddie's MBS and ABS investments.

In confirming the change, Freddie Spokesman Michael Cosgrove acknowledged DBRS's gaining presence in the U.S. while being a significant rating agency in Canada. Cosgrove explained that Freddie Mac requires one nationally recognized rating agency to rate the non-agency securities that it buys.

DBRS officials think this is a reaffirmation of the strides they have made since it entered the U.S. market less than two years ago. The rating agency opened its New York office in March 2004 and its Chicago offices just prior to that.

"We are pleased by Freddie Mac's announcement," said Greg Nelson, group managing director for structured finance at DBRS. "Its decision to afford us full recognition is another example of the value DBRS adds to the global capital markets, and of our commitment to giving issuers and investors more rating choices."

"We strive to address investors' needs," added Michael Nelson, managing director in U.S. structured finance. "We believe the decision by Freddie Mac is a reflection of investor support of DBRS."

Although officials from the rating agency are not commenting on whether a similar policy change is in line for Fannie Mae deals, it rated the GSE's May 11 resecuritization, Fannie Mae Grantor Trust 2005-T2, underwritten by RBS Greenwich Capital.

This is a significant break for the rating agency, which was formed in Canada in 1976. Although already a recognized presence in CMBS, in terms of asset-backeds, DBRS has primarily rated RMBS deals thus far, including several second liens and NIMs. The rating agency has made inroads in auto ABS as well, most recently rating the over $3 billion Citigroup Global Markets led Capital Auto Receivables Asset Trust 2005-1. Since last year, it has rated three auto loan deals and one auto lease and a wholesale dealer floorplan auto transaction. In terms of ABS, DBRS has, as of the end of July, rated 108 deals, totaling a little over $119 billion. Over the same time period, DBRS has also rated $10.9 billion worth of commercial mortgage backed securities.

DBRS has published its methodology on RMBS default probability, severity, cashflow and NIMs. And as part of its efforts to gain ground in other asset classes, DBRS has released its methodology for auto and student loan ABS last year. It has also expanded its coverage to include asset-backed commercial paper transactions as evidenced by the recent hire of Matthew La Capra as vice president focusing on ABCP.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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