DBRS Publishes Final Methodology: RMBS Insight: U.S. Residential Mortgage-Backed Securities Loss Model and Rating Methodology

DBRS, Inc. has today published its final methodology on RMBS Insight: U.S. Residential Mortgage-Backed Securities (RMBS) Loss Model and Rating Methodology. This methodology, effective as of the date of this press release, supersedes the previous methodology “Rating U.S. Residential Mortgage-Backed Securities Transactions” dated April 2009.

The final methodology does not have any substantive changes from the proposed RMBS Insight: U.S. Residential Mortgage-Backed Securities loss model and rating methodology which was published on October 11, 2011 with a request for comments. In the final methodology, DBRS further enhanced the operational risk framework in Appendix 2 to include a scoring method for both originator and servicer reviews.

In this methodology, DBRS introduces RMBS Insight, its new residential loss model that estimates loan-level default probability, loss severity and expected loss for a pool of mortgage loans. RMBS Insight consists of multiple sub-modules, or models, which cover the rating analytics of a variety of asset types that include newly-originated and seasoned pools, liquidating trust, FHA and VA securitizations, swap termination payments, as well as ReREMICs.

RMBS Insight incorporates, on a MSA level, home price forecasts and regional economic factors such as unemployment rates, per-capita income and growth rate in civilian labor force. The model also addresses concentration risk by geography and loan size, small pools and modification. Finally RMBS Insight uses an asset correlation and simulation approach to derive rating category stresses, based on the DBRS published idealized default table.

DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.