Moody's Analytics said that the next generation of Moody's Mortgage Metrics model for U.S. subprime mortgage loans will be available to market participants on Aug. 15.

The product was developed by Moody's Investors Service and is being used by its structured finance analysts as an input when rating primary issuance of subprime RMBS. The next generation ratings model for Prime and Alt-A mortgages will be released in the fourth quarter. 

Moody's Mortgage Metrics analyzes loan level data to estimate loan- and portfolio-level default, loss given default, and prepayment rates as well as other mortgage pool risk measures.

The new subprime Moody's Mortgage Metrics model has considerable enhancements including more robust simulation capabilities, greater transparency into the impact of various economic scenarios (including the effect of HPA and U.S. unemployment on expected loss), explicit treatment of mortgage underwriting quality, and the ability to analyze portfolio tail risk at a more granular level. The new model has been validated using data through the 2007 vintage to reflect the recent housing market dislocation. 

"Moody's Mortgage Metrics enhanced simulation technology provides a greater level of precision in analyzing mortgage pool risk than was available using the legacy technology," said Roger Stein, managing director of research and analytics for Moody's Investors Service. "While the current credit environment continues to evolve, the enhanced simulation tools and new econometric models we are introducing in Moody's Mortgage Metrics represent significant advancements in measuring a number of aspects of this credit risk with greater analytical rigor, while providing a greater level of transparency."

While the new model delivers enhanced analytical power, the interpretation of model results and the qualitative judgment of Moody's analysts are still important factors in the assignment of ratings.

"The enhancements, greater precision and transparency provided by the new Moody's Mortgage Metrics model will serve as important considerations in our ratings process. However, given the judgment provided by experienced analysts in arriving at opinions of credit risk, it is important to recognize that there may be differences between model outputs and our ultimate rating decisions," said Claire Robinson, senior managing director for the asset finance group at Moody's Investors Service.

As part of its ongoing development of mortgage tools and models, the rating agency is expanding the functionality of Moody's Mortgage Metrics as a surveillance tool. Moody's will also integrate Moody's Mortgage Metrics with Structured Finance Workstation (SFW), which is the cash flow engine offered by Moody's Wall Street Analytics.

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