Fitch: Improvements Needed in U.S. RMBS Due Diligence

The private-label U.S. residential mortgage-backed securities market should establish a new due diligence working group to drive grading, process and standardization improvements, said Fitch Ratings, New York.

The Fitch report highlights 12 needed focus areas for the RMBS industry relating to regulatory compliance, the diligence review process and product challenges. High-level takeaways from the report include:

–A working group, perhaps within the Structured Finance Industry Group, is needed to help establish industry consensus on current and upcoming due diligence items.

–The industry could benefit from greater uniformity as grading differences exist among the TPR firms, with much of this due to interpretations of regulatory compliance matters.

–Reporting and process changes could be implemented to make the due diligence product clearer and easier to use.

–Uncertainty exists among the TPR firms on how to properly perform due diligence on certain new loan products, including reduced bank statement loans, asset depletion programs, and investor cash flow loans.

Fitch Managing Director Roelof Slump the last takeaway is “noteworthy,” since reduced bank statement program loans, asset depletion programs and investor cash flow loans are now making their way into new deals.

“Guidelines for seasoned loan products are not always available and third party firms have differing methodologies for determining compensating factors on loans with exceptions,” Slump said. “There is precedence for third-party firms and the mortgage industry working together to resolve key issues.”