DBRS Publishes Methodology for Assessing U.S. RMBS Transactions Under ATR Rules

DBRS has today published its methodology for analyzing U.S. residential mortgage-backed securities (RMBS) pools under the Ability-to-Repay (ATR) rules (the Rules) issued by the Consumer Financial Protection Bureau. The Rules, effective as of January 10, 2014, may have an impact on RMBS pools as borrowers that are not protected under the legal safe harbor may use ATR claims as a defense to foreclosure.

The criteria describes DBRS loan-level loss severity adjustments to pools consisting of Non-Qualified Mortgages and Qualified Mortgage (QM) Rebuttable Presumption loans. The analysis takes into consideration the DBRS estimation of the percentage of borrowers expected to claim an ATR violation after default, the probability of such challenges being successful and the expenses incurred in the litigation process. The methodology also discusses other considerations, including the operational risk of the originator, third-party due diligence results and the quality of transaction representations and warranties. DBRS does not assume that a borrower will bring a claim for QM Safe Harbor loans, therefore these mortgages would pose no additional risk to an RMBS transaction in the DBRS analysis.

The methodology does not set forth any material changes and does not anticipate any rating changes to existing RMBS ratings, as these securities were either backed by mortgages with applications taken before January 10, 2014, or if after such date, the loans have been deemed as QM Safe Harbor loans.

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