Fast-track mortgages in the prime sector are no more risky than income-verified prime loans, concludes a report by Fitch Ratings.
However, in contrast self-certification mortgages in the non-conforming sector invariably turn out to be more risky than those originated with certified income.
Gregg Kohansky, managing director of Fitch's European RMBS team, said: "Lenders typically apply stricter credit scoring criteria for fast-tracked mortgages than for fully verified loans so the results are not necessarily surprising,
"However, for Fitch to treat these loans on a par with one another in our ratings analysis for specific transactions, the agency will need to perform a detailed performance assessment showing this relationship holds."
The study of more than 700,000
Fitch also found that adverse borrower information dominates any other risk factor.
This is consistent with the market convention to separate prime from non-conforming loans.
A further conclusion of the analysis is that the risk indicators themselves can change over time. For example, there is evidence of problems with mortgages for new-build properties originated in 2006 and 2007, which can be attributed to a loosening of underwriting procedures. Also, the self-employed are more likely to default as they are more vulnerable to general economic deterioration compared to employees.
The study is based on arrears and repossession information of mortgage loans originated in the
The special report "Default
Date: 3rd, March, 2010
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