Fitch Ratings is reviewing its market value decline (MVD) assumptions for German residential properties.
The rating agency believes that these assumptions will most likely result in higher MVDs, especially for weaker economic regions.
MVDs are adjustment factors used to account for a decline in the value of the property backing RMBS mortgage loans in a stressed economic environment at the various rating categories. They determine the extent of loss severity and recovery assumptions in Fitch's analysis of German RMBS.
"Historical foreclosure data collected in the course of our criteria update indicates that an adjustment of the MVD assumptions is necessary," said Susanne Matern, senior director and head of the structured finance team in Frankfurt. "The data collected to date suggests that foreclosure proceeds from properties backing defaulted residential mortgage loans in Germany are lower than originally assumed when developing Fitch's rating criteria for German RMBS."
However, Matern said that the extent of any potential rating action on German RMBS is presently uncertain and will ultimately be depend on the comprehensive review of loss severity and default probability-related assumptions.
This MVD review will replace the MVD assumptions published in the report German Residential Mortgage Default Model 2004 dated December 1, 2004. Fitch expects to complete the MVD review for German RMBS in October 2008.