Kroll Bond Rating Agency (KBRA) is currently seeking public comment on five publications that were released today regarding its RMBS rating process. This means that the rating agency can now rate residential mortgage-backed deals.
Comments should be submitted to firstname.lastname@example.org on or before Sept. 9.
“By providing complete transparency into our approach and processes, we aim to instill trust in the market and to raise the bar on ratings accuracy,” said James Nadler, president and chief operating officer of KBRA. “These publications demonstrate our strong commitment to serving the market through a rigorous evaluation of the collateral as well as key parties in an RMBS, and combine all aspects of our process in an integrated analysis.”
The reports offer an overview of the agency’s RMBS rating methodology and detailed descriptions of the processes that it will use to evaluate originators, servicers, and results of third-party file reviews, as well as a description of KBRA’s loan-level mortgage default and loss model.
KBRA is looking for comments on all aspects of the methodology and process described from investors, mortgage originators, issuers, arrangers and regulators.
After reviewing and evaluating all the submissions, the rating firm will publish final versions of these documents. Once published, they will make up part of KBRA’s RMBS rating methodology.
The five publications supporting and explaining KBRA’s RMBS process include RMBS Rating Methodology Overview, which offers a summary of KBRA’s RMBS methodology and each aspect of its analytical approach.
Residential Mortgage Default and Loss Model looks at the loan-level modeling analysis of mortgage pools, with a focus on pools of newly originated prime-quality mortgages. It also reports on the different mortgage and borrower attributes that the model considers in projecting default probabilities as well as loss estimates. The report also details the agency’s approach to finding out the amount of loss on the mortgage pool that bonds at each rating category should be able to withstand. This approach is based on estimating home price dips of varying severity. The report offers examples of the effectiveness of the model versus actual historical default and loss experience from the housing bubble, as well as sample results for a representative pool of newly originated mortgages.
There are also two publications called: Residential Mortgage Originator Review Process and Residential Mortgage Servicer Review Process. Both describe KBRA’s review process for mortgage loan originators and servicers. KBRA’s review zeroes in on the business model, strategy, and operational quality of originators and servicers to assess their effect on loan quality and performance. The rating agency might make adjustments to its rating analysis based on specific aspects of the originator’s or servicer’s operations and would explain those adjustments in its presale reports.
Residential Mortgage Loan Review Process looks at KBRA’s approach to evaluating third-party review firms, the scope and results of loan file reviews, as well as the approach KBRA will take to factoring the results into its rating analysis.