Fitch Updates Cash Flow Modeling & NIMs Criteria for U.S. RMBS

Business Wire, Sept 5, 2006

NEW YORK -- Fitch Ratings has updated its cash flow modeling criteria for rating U.S. residential mortgage-backed securities (RMBS) and net interest margin (NIM) securitizations, effective immediately. Fitch's new criteria is implemented using the INTEX DealMaker structure modeling system.

As detailed in the July 18 report, 'U.S. RMBS Cash Flow Modeling Criteria', the revised criteria updates Fitch's assumptions for prepayments, loss distribution, and interest rates used when rating deals with senior-subordinate/overcollateralization (senior-sub/OC) structures that are typical in subprime and, more recently, in some Alt-A securitizations. Fitch's cash flow assumptions are based on mortgage performance data and give consideration to historical and projected market conditions.

In conjunction with the new criteria, Fitch has also announced that it has adopted the industry standard deal modeling tool, INTEX DealMaker. INTEX DealMaker provides a new level of transparency in Fitch's interaction with underwriters and issuers on the development of new structures.

Senior-sub/OC structures rely on excess spread as a form of credit enhancement. Such structures use the interest cash flow from assets in excess of the liability interest due (excess spread) to pay down bonds in order to offset losses on collateral. Credit enhancement is derived from a variety of sources, including excess spread and subordination. Proper valuation of each source of credit enhancement is essential to providing adequate loss protection for rated securities.

The updated cash flow modeling criteria will also affect the way net interest margin securities (NIMs) are analyzed and sized by Fitch. Excess spread that is not used to cover losses or build O/C is typically released to the residual certificate or class R certificate, which is used as collateral to back the NIM security. Thus, the amount of excess spread available for paying principal and interest to the NIMs is a function of Fitch's modeling assumptions, derivative cash flows, and other structural features.

For details on Fitch's criteria, see the two new criteria reports available at www.fitchratings.com:

-- 'U.S. RMBS Cash Flow Modeling Criteria'; and

-- 'U.S. Rating Criteria For Net Interest Margin Securities.'

The updated cash flow modeling assumptions are available in spreadsheet form under 'Cash Flow Modeling Assumptions-Revised' on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.