Fitch: ‘Ample Due Diligence in Place’ for U.S. RMBS

Fitch Ratings, New York, said “strong due diligence is firmly in place” for most post-crisis U. S. residential mortgage-backed securities.

In a report analyzing third-party review firms that perform RMBS due diligence of more than 100,000 loans from 92 securitized deals, Fitch said activity showed “exceptional results” so far for loans originated in recent years, with only a few isolated outliers.

Fitch said its application of diligence criteria resulted in ‘A-B’ grades to virtually its entire universe of rated RMBS collateralized with loans originated after the financial crisis, reflecting no worse than non-material issues. Amit Arora, Fitch director of RMBS said as would be expected, diligence grades on loans in re-performing loans originated prior to the financial crisis show a higher percentage of more material issues.

“For recent RPL transactions, examples of ‘C-D’ grades include missing required disclosures such as the note, mortgage, truth in lending and final HUD-1s,” Arora said. “The few ‘C-D’ grades on recently originated loans are generally related to the initial TRID loan reviews not yet incorporated into Fitch criteria and market participants not having a clear approach to cure the TRID exceptions.”

Fitch said under its June revised criteria the majority of loans previously graded “C-D” for TRID compliance would now be classified as “B,” due to the exception being classified as non-material.

Fitch said more than 80 percent of all due diligence results reviewed have been provided by two firms, although the number of active TPR firms varies by RMBS sector. “Due diligence on recently originated loans generally reflect solid operational controls and post-crisis industry improvements in policies and procedures,” Arora said.