Morningstar DBRS Publishes Final Closed-End Second-Lien Appendix to the RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology

Morningstar DBRS finalized its Appendix 11: Post-Crisis Closed-End Second-Lien D180 Module to the "RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology." This appendix presents the criteria for which post-crisis closed-end second-lien (CES) loan credit ratings are assigned and/or monitored.

The methodology supersedes the prior version published on September 30, 2024, and is effective as of January 2, 2025.

As detailed in the appendix, the Morningstar DBRS post-crisis CES module estimates the probability of a post-crisis CES loan becoming 180 days delinquent within two years (D180). The two-year D180 score is then used in the default estimation process, which calculates the probability of loan default on a monthly basis using the existing RMBS 1.3 D180-to-Default Model. For loss severity estimation, the existing RMBS Insight 1.3 recovery module is used.

The proposed update is material in nature as it introduces a new CES module, but it is not expected to have a credit ratings impact on any outstanding Morningstar DBRS-rated U.S. RMBS securities. The appendix addresses the analytics of post-crisis CES loans only and does not affect any other asset types covered in U.S. RMBS Insight 1.3.

Finalization of this methodology follows the conclusion of the request for comment period that began on November 12, 2024. Morningstar DBRS received no comments during the request for comment period related to its Appendix 11: Post-Crisis Closed-End Second-Lien D180 Module to the "RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology."

Notes:
Morningstar DBRS methodologies are publicly available on its website https://dbrs.morningstar.com under Methodologies & Criteria.

For more information on this methodology or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.