From January 2008, the ratings agency has insisted it will review the risk management procedures of companies at every stage of the securitisation process and place greater emphasis on reviewing the quality of securitised products both before and after the book has been sold.
Fitch hopes this heightened analysis will improve the performance of securitisations going forward and guard against a repeat of what has happened in the US non-conforming market this year.
In its report, ‘The Impact of Poor Underwriting Practices and Fraud in Sub-Prime RMBS Performance’, Fitch said: “In order to better detect and prevent poor underwriting and fraud, a combination of technology and basic risk management is needed before, during and after the origination of the loan. Fitch believes that conducting a more extensive originator review process, including incorporating a direct review by Fitch of mortgage origination files, can enhance the accuracy of ratings and mitigate risk to investors. Additionally, a more robust system of representation and warranty repurchases may be desirable.”
Dev Malle, sales director at Personal Touch, said: “Anything which will bring back liquidity to the market has got to be welcomed. However, it won’t be good if a blanket approach is taken as the experiences of the US market have been completely different to what has been happening in the UK.”
