DBRS Publishes Updated Third-Party Due Diligence Criteria for U.S. RMBS Transactions

DBRS has today updated its criteria for evaluating third-party reviews for U.S. residential mortgage-backed securities (RMBS) transactions.

In this methodology, DBRS outlines its criteria for a third-party due diligence review for U.S. RMBS transactions that includes a comprehensive regulatory compliance and credit review, data integrity check and property valuation analysis. It also provides guidelines on the assessment of due diligence firms and the selection of a random and statistically valid sample size.

In the update, DBRS has added a new loan-level reporting standard that it expects an approved third-party due diligence firm to include in its assessment of the due diligence sample as it relates to regulatory compliance, credit and property valuation. DBRS expects such due diligence firm to assign loan-level grades of “A” through “D” based on the findings of each review segment.

The updated criteria also includes compliance with the Qualified Mortgage (QM) and Ability-to-Repay (ATR) rules. DBRS expects the third-party due diligence firms to verify a loan’s designation assigned by the lender and evaluate its compliance with the lender’s underwriting guidelines for adhering to ATR. In addition, DBRS will review the due diligence firm’s ability to assess ATR and QM compliance and its related processes.

Finally, DBRS has added its operational risk agenda for evaluating third-party due diligence firms as an appendix to the criteria.

No material changes have been made to the methodology. Accordingly, no rating actions will be taken on any outstanding U.S. RMBS transactions. This methodology, effective as of the date of this press release, supersedes any previous methodologies. The new methodology will not result in any rating actions. DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.