Realpoint has launched an operational risk assessment practice that will be headed by Michael Gutierrez, formerly managing director and head of servicer evaluations at Standard & Poor's.
Michael Merriam, Richard Koch, and Mary Chamberlain have also joined the team as senior operational analysts.
The new practice will take the rating agency's tradition of providing transparency and insight to investors in structured finance transactions to a new level through increased emphasis on operational risks from the investor point of view, Gutierrez said.
The group will initially focus on the performance of mortgage servicing firms. Gutierrez said that it will be looking at how servicers handle cash flow predictions, report to the trustee regarding modifications and treat any perceived conflicts of interest that might exist between the servicers and other bondholders.
It will have a policy of 100% transparency and, as such, there will be no confidential servicer ranking and with all results published on the rating agency's Web site and available to the marketplace.
"The addition of operational risk assessment capabilities adds another important component to Realpoint's analytical scope," Realpoint CEO Robert Dobilas said. "We can now enhance our transaction-level ratings and analysis of mortgage-backed securities with a comprehensive assessment of the operational risk of the parties to the securitization process. Mike Gutierrez and his team will use Realpoint's robust data set, technology, and industry-leading analytics to develop an investor-focused solution that will establish a new standard for operational evaluations in the structured finance market."
Operational risk has always been a key concern in structured finance transactions that could potentially affect a deal’s health. These transactions are heavily dependent on the successful transfer and underlying servicing processes. When those operational processes fail, the value of the securities can drop precipitously.
Earlier this month, Moody's Investors Service published its comprehensive guidelines for analyzing operational risk in structured finance transactions globally.
According to Moody's, the current crisis has drawn into sharp focus concerns that structural features in some securitizations might need to be re-assessed to ensure that they are adequate to mitigate the impact from the possible failure of the servicer or of other transaction parties.
Moody's believes that the performance of a securitization depends not only on the underlying collateral performance, but also on the effective performance by the transaction parties of their responsibilities.
The more comprehensive methodology applies immediately to the new deals that Moody's will rate and to Moody's outstanding ratings on ABS, RMBS, CMBS, and certain structured credit transactions globally.
In Europe, the ratings placed on review for possible downgrade based on the methodology will include 131 tranches from 78 RMBS, 40 tranches from 26 ABS, 48 tranches from 29 CMBS, and one tranche from one structured credit transaction. The ratings that will be placed on review are mostly 'Aaa' ratings, although also include some 'Aa' and 'A' ratings. In the U.S., the rating agency will place one deal on review for downgrade.
The Realpoint team said that, down the line, it is possible that they will also have to review ratings based on its new operational risk assesment.