NEW YORK--(BUSINESS WIRE)--
Kroll Bond Rating Agency (KBRA) announces the release of its methodology for assessing non-Qualified Mortgage (non-QM) risk in U.S. residential mortgage-backed securities (RMBS). The report, Assessing Non-QM Risk in U.S. RMBS, provides insight into KBRA’s proposed analytic approach for rating RMBS backed by non-QM loans. The methodology relies on KBRA’s fundamental analysis of mortgage risk, augmented by stressed assumptions regarding a borrower’s propensity to engage in litigation against an originator, and potential losses resulting from a successful borrower claim.
While the discussion in KBRA’s report relates to non-QM loans that are prime credit quality mortgage loans, similar to loans that have been included in prime jumbo RMBS to date, KBRA would also consider rating RMBS backed by non-prime, non-QM loans. However, this collateral would pose additional considerations regarding whether the non-QM status when combined with less affluent and perhaps less sophisticated borrowers posed a heightened risk of successful challenges under the QM rule.
Non-QM is a new mortgage risk factor resulting from regulations enacted by the Dodd-Frank Act. Therefore, there is little historical data demonstrating how this risk factor might affect mortgage performance. Certain assumptions made by KBRA have been derived from limited data on litigation-related mortgage loss. KBRA published a request for comment on December 5, 2013 seeking feedback on its non-QM methodology from market participants. KBRA received a number of comments during the comment period, which ended January 31, 2014, has incorporated those comments deemed appropriate, and finalized its methodology.
About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).