DBRS Releases Rating Methodology for U.S. RMBS

DBRS has released an updated methodology for rating U.S. residential mortgage-backed securities (RMBS) that combines the previously published individual RMBS methodologies and related updates on default frequency, loss severity, cash flow and net interest margin securitizations. This methodology also includes a section on the rating process for the re-securitization of real estate mortgage investment conduits (ReREMICs).

The U.S. RMBS rating methodology reflects the following analytical considerations:

(1) Operational Risk Assessments: DBRS assesses the operational risk by evaluating the quality of the mortgage originator and servicer.

(2) Default Frequency and Loss Severity Analysis: DBRS conducts a loan-level analysis using the DBRS proprietary U.S. RMBS Model. The output from the model includes the default frequency, loss severity and expected credit losses of a mortgage pool. The results are then reviewed along with the operational risk assessments and are subject to adjustment if necessary.

(3) Cash Flow Analysis: For transactions with excess spread, DBRS performs a cash flow analysis by incorporating dynamic stress assumptions on prepayments, timing of losses and interest rates to estimate the available excess spread for loss coverage.

(4) Legal Structure and Opinions: DBRS reviews the legal structure of the transaction and the associated legal opinions.

DBRS has incorporated the updated default frequency and loss severity analysis into its U.S. RMBS Surveillance Methodology, which is available at www.dbrs.com.

The methodology providing DBRS's processes and criteria is available by contacting us at info@dbrs.com.