As ASR reported on Aug. 1, Kroll Bond Rating Agency (KBRA) is requesting comment for its rating approach for individual RMBS transactions. 

The rating agency said that its methodology will be based on an integrated assessment of the originator and the servicer, the mortgage loan pool, and the security structure and deal terms.

“We welcome input during the comment period on any part of the methodology and feedback on any of its components. “ said Eric Williamson, a senior managing director at KBRA. “Our  methodology is based on a fundamentally sound rating approach. Standards in the boom market got away from basic disciplines of collateral quality.”

He added that KBRA is aiming to focus on several things inits ratings process. “There is the evaluation of the collateral. We are also going to look at originator and servicers and where market conditions and standards are in the cycle.” Williamson said that they will also look at originators’ business model to find out the strategy that they deploy in their operations and in the evaluation loan collateral.

KBRA will also be looking at how an originator underwrites collateral and what the operational impact is on collateral. “These would be integrated into the deal analysis,” Williamson said.

That part of their approach, he stated, is to look at how servicers and originators’ operations impact Kroll’s analysis of the deals — both the overall components and individual parts of the business.“We would make adjustments on a granular basis and would include these in our write ups on the deals.”

As part of the rating agency’s methodology, KBRA will also use a transition model to analyze each loan across several home price stress scenarios.

"In terms of the modeling aspect, we are very interested in what participants think about our home price scenario analysis,” said Glenn Costello, senior managing director at the firm. “Is everything transparent and clear about how our model works?"

Two things come to mind, Costello said — obviously there is the “terrible” mortgage performance due to the severe home price data that placed mortgages under stress. "We incorporate that into our current view of mortgage performance  — the default rates that we project given the substantial home price stress associated  with triple-A ratings,” he added.

Williamson said that KBRA’s future involvement in the RMBS market would depend on market conditions and issuance, which could be 4Q11 or 1Q12.

“There is a fair amount of prime Jumbo origination, but how much securitization will come out of that would depend on banks’ balance sheet appetite,” Williamson said. "Consensus views are that there will probably be some deals coming to the market in the next few quarters."

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