Standard & Poor's announced last week it will begin requiring more credit enhancement for closed-end subprime second-lien mortgages. The rating agency joins Moody's Investors Service in its decision to do so.
Per the new methodology, a 701 FICO deal with a 96.48 CLTV will need 8.1% credit enhancement, compared with 5.45% credit enhancement previously. A 707 FICO deal with a 97.35 CLTV will need 5.05% credit enhancement, up from 3.70% under the earlier methodology. Similarly, a 675 FICO deal with a 97.06 CLTV will require 8.15% credit enhancement, compared with 6.30% earlier, according to examples provided by S&P.