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Performance of Main lumbo Issuers
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Moody's Investors Service
Agenda
• Summary of Main lumbo players and collateral
characteristics
• Performance by vintage broken out by FRM/ ARM
based on:
- 30-59 days delinquency
- 60+ delinquency as
%
of Original balance
- 90+ delinquency as % of Original balance (inc.
Foreclosure and REO)
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• Summary & Recommendations
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Moody's Investors Service
Main Jumbo Issuers in 2004 and 2005
2005
1
2
3
4
5
6
7
8
9
10
Wells Fargo
Goldman Sachs
JP Morgan
Bank of America
Countrywide
Bear Stearns
Merrill Lynch
Washington Mutual
Thornburg
RFC
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Moody's Investors Service
Amount in $Bn
36.2
16.9
15.8
15.2
12.9
10.4
7.1
6.6
5.5
5.2
2004
1
2
3
4
5
6
7
8
9
10
Wells Fargo.
Bank of America
WaMu
Goldman Sachs
Countrywide
Merrill Lynch
Sequoia
CitiMortgage
JP Morgan
UBS
Amount in $Bn
25.0
17.3
14.2
10.4
9.8
9.5
8.9
6.0
5.6
5.0
Ideal Scenario ...
•
Just go by the servicer rating adjustments ...
Figure 1: CE Adjustments based on the SQ Rating of the Primary Servicer
Servicer's SQ Rating or equivalent
CE Adjustments
SQl
-6%
SQl-
-4%
SQ2+
-2%
SQ2
0%
SQ2-
2%
SQ3+
4%
SQ3
6%
SQ3-
8%
SQ4+, SQ4. SQ4-
12-20%
SQ5
Case specific
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Moody's Investors Service
Collateral Characteristics
FRM
CW
RFC
730-740
735-745
725-735
67/72
68!?
73/74
70/74
?
65/35
45/55
30/70
0/100
ECS
Capstone
ZIPPY
CLUES
Proprietary
5 Appraisal Requirements
$1.5M
$1.25M
$1M
$1M
$1M
6 Avg concentration in CA
40%-50%
40%-50%
30%-40%
40%-50%
30%-40%
30%
0%
0%
20%
25%
0%
0%
0%-1%
0%-1%
0%
SQ1
SQ1
SQ1
Private (SQ2)
SQ1
SQ1
1 Observed Avg FICO
2 Observed Avg LTV/CL TV
3 Origination chanel: RIW (%)
4 Underwriting Engine (DU,LP, Proprietary)
7 Avg 10%
8 Avg Investor Properties
9 Servicer Rating
WELLS
BOA
CHASE
740-750
745-750
68/71
WAMU
ARM
WELLS
BOA
CHASE
WAMU
CW
RFC
740-750
745-750
740-750
735-745
720-730
730-740
69/73
72175
70!?
67/68
71/78
72178
?
65/35
45/55
?
30/70
0%/100%
ECS
Capstone
ZIPPY
Proprietary
CLUES
Proprietary
5 Appraisal Requirements
$1.5M
$1.25M
$1M
**
$1M
$1M
6 Avg concentration in CA
40%-50%
40%-50%
30%-40%
60%-70%
40%-50%
30%-40%
7 Avg 10%
30%
70%
75%
95%
90%
80%
8 Avg Investor Properties
4%
0%-1%
0%-1%
0%-1%
0%-1%
0%
9 Servicer Rating
SQ1
SQ1
SQ1
Private (SQ2)
SQ1
SQ1
97%
99%
100%
100%
100%
100%
97%
99%
100%
100%
100%
100%
1 Observed Avg FICO
2 Observed Avg LTV/CL TV
3 Origination chanel: RIW (%)
4 Underwriting Engine (DU,LP, Proprietary)
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Current Postion relative to M3
Target
~osition
relative to M3
out~ut
out~ut
Moody's Investors Service
0
Jumbo Index Composition
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I!!:fiell
ABNAMRO
BoAFunding
BOAMS
BSARM
Cendant
ChaseMortgageFinanceTrust
ChevyChaseFunding
CHLMortgage
CiticorpMtgSecInc
CitigroupMtgLoanTrust
CSFB
CWMBS
DeutscheMtgSec
ETRADE
FirstHorizonMtgPassThrough
FirstRepublicMtgLoanTrust
FNT
GMACM
GSRMtgLoanTrust
IndyMacINDA
JPMorganMtgLoanTrust
MASTRARMTrust
MASTRAssetSecTrust
MLCC
MLMI
MRFCMtg
MSDWCapital
PHHMtgCapital
PNCMtgSecCorp
PrimeMtgTrust
ProvidentFundingMtgLoanTrust
RAST
RFMSI
SalomonMtgLoanTrust
Sequoia
Thornburg
WAMU MSC
WAMUMtg
WelisFargo
ZionsResidentialMtgLoanTrust
Grand Total
Moody's Investors Service
~i5gl
4.Ho
0.0%
9.1%
12.9%
0.9%
2.6%
0.0%
6.0%
0.4%
0.0%
1.5%
6.8%
0.0%
2.3%
2.5%
0.6%
0.8%
0.7%
0.6%
0.0%
0.0%
0.3%
0.8%
1.0%
0.0%
2.0%
0.4%
0.0%
1.0%
0.0%
0.0%
0.0%
8.5%
0.7%
0.7%
1.4%
4.8%
11.2%
14.4%
0.4%
100.0%
~i5g~
1.5;0
0.0%
6.4%
7.0%
0.9%
1.7%
0.0%
9.3%
0.7%
0.0%
6.6%
0.0%
0.0%
0.0%
2.6%
0.8%
0.0%
1.8%
5.6%
0.0%
0.0%
1.2%
4.6%
0.0%
1.0%
0.5%
0.6%
0.0%
0.0%
0.0%
0.0%
0.7%
3.4%
0.3%
5.0%
1.4%
3.3%
26.1%
7.1%
0.0%
100.0%
~~~1
0.9%
9.1%
5.9%
0.0%
2.3%
1.6%
14.2%
2.0%
0.1%
10.6%
0.0%
0.0%
0.0%
2.2%
0.0%
0.0%
1.2%
2.7%
0.0%
0.2%
0.1%
1.7%
6.7%
2.4%
0.0%
0.2%
0.0%
0.0%
0.6%
0.3%
0.0%
2.6%
0.0%
4.8%
3.1%
0.6%
12.5%
9.4%
0.0%
100.0%
~~~!
0.2%
8.4%
3.4%
0.0%
1.0%
4.8%
12.4%
2.1%
1.0%
0.8%
1.1%
0.1%
0.0%
1.3%
0.0%
0.0%
2.7%
4.2%
0.0%
1.5%
2.3%
0.5%
6.7%
0.4%
0.0%
0.0%
0.0%
0.0%
0.2%
0.3%
0.0%
1.3%
0.0%
8.1%
3.8%
0.0%
10.5%
21.0%
0.0%
100.0%
~~~!
2.2%
5.8%
3.9%
0.0%
2.0%
3.6%
7.1%
3.7%
1.3%
2.4%
0.0%
0.0%
0.0%
1.8%
0.0%
0.0%
1.8%
5.3%
0.2%
7.1%
0.0%
0.3%
3.8%
1.3%
0.0%
0.0%
0.1%
0.0%
0.4%
1.3%
0.0%
4.3%
0.0%
1.2%
5.6%
0.0%
4.7%
28.6%
0.0%
100.0%
0
ARM
PERFORMANCE REVIEW
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Moody's Investors Service
30-59 Delinquency ARM 01
1.20% , .............................................................................................................................................................................................................................................................................................................................................................................................................,
1.00%
-JUMBO
0.80%
BOAMS
CW
0.60%
-RFC
-THORNBURG
0.40%
-WAMU
0.20%
0.00%
+--.L_ _....,_____
o
10
L-_~_...c::.:..::'!
20
30
Seasoning
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Moody's Investors Service
40
50
60
60+IOriginal Balance ARM 01
0.45%
0.40%
0.35%
-Jumbo
0.30%
BOAMS
0.25%
CW
0.20%
Thornburg
0.15%
-WAMU
0.10%
0.05%
0.00%
0
10
20
30
Seasoning
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Moody's Investors Service
40
50
60
90+/0riginal Balance ARM 01
0.35%
0.30%
-JUMBO
BOAMS
0.25%
0.20%
CW
0.15%
-RFC
0.10%
-THORNBURG
-WAMU
0.05%
0.00%
0
10
20
30
40
50
60
Seasoning
Best Performance: Countrywide - RFC
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Moody's Investors Service
30-59 Delinquency ARM 02
1.40% ,.........................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
1
-JUMBO
1.20%
BOAMS
1.00%
CENDANT
CW
0.80%
FHA
0.60%
0.40%
0.20%
WELLS
o
5
10
15
20
25
Seasoning
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Moody's Investors Service
30
35
40
45
50
60+IOriginal Balance ARM 02
0.60%
-Jumbo
0.50%
-BOAMS
0.40%
Cendant
CW
0.30%
FHA
-RFC
0.20%
-THORNBURG
-WAMU
0.10%
WELLS
0.00%
0
10
20
30
Seasoning
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Moody's Investors Service
40
50
90+/0riginal Balance ARM 02
0.45%
0.40%
-JUMBO
-BOAMS
0.35%
0.30%
CW
0.25%
FHA
0.20%
-RFC
-THORNBURG
-WAMU
WELLS
0.15%
0.10%
0.05%
0.00%
0
10
20
30
40
50
Seasoning
Best Performance: RFC - WAMU - Wells
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30-59 Delinquency ARM 03
1.20%
1.00%
-JUMBO
-BOAMS
0.80%
CW
-FHA
0.60%
-THORNBURG
0.40%
------
-WAMU
WELLS
0.20%
0.00%
0
5
10
15
20
Seasoning
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Moody's Investors Service
25
30
35
40
60+/0riginal Balance ARM 03
0.40%
0.35%
-Jumbo
0.30%
BOAMS
CW
0.25%
FHA
0.20%
-THORNBURG
-WAMU
0.15%
WELLS
0.10%
0.05%
0.00% + - - -
o
5
10
15
20
25
Seasoning
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Moody's Investors Service
30
35
40
45
90+/0riginal Balance ARM 03
0.35%
0.30%
0.25%
-JUMBO
BOAMS
0.20%
CW
FHA
-THORNBURG
-WAMU
WELLS
0.15%
0.10%
0.05%
0.00%
0
5
10
15
20
25
30
35
40
45
Seasoning
Best Performance: Wells - WAMU - BOA
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Moody's Investors Service
30-59 Delinquency ARM 04
1.20%
-JUMBO
-BOAMS
CW
FHA
-RFC
-THORNBURG
-WAMU
WELLS
o
5
15
10
Seasoning
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Moody's Investors Service
20
25
60+/0riginal Balance ARM 04
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
-Jumbo
-
BOAMS
CW
-
FHA
0.20%
~:~~: j--~~--~-~-:::--~~=~~~~:::~~::
o
5
10
15
Seasoning
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Moody's Investors Service
20
25
30
THORNBURG
-WAMU
WELLS
90+IOriginal Balance ARM 04
0.50%
-JUMBO
0.40%
BOAMS
0.30%
CW
FHA
0.20%
-THORNBURG
-WAMU
WELLS
o
5
10
15
20
25
Seasoning
Best Performance: Wells - WAMU - BOA/RFC
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30-59 Delinquency ARM 05
1 .60%
- r...... -............ -............ -............ -............ -............ -............ -............ -............ -............ -............ -............ -............ -...... _.... _............-_............-_............-_............-_............-_............-_............-_............-_............-_............-_............-_............-_............-_..........,
1.40%
-JUMBO
1.20%
BOAMS
1.00%
CW
0.80%
-RFC
-THORNBURG
0.60%
-WAMU
0.40%
WELLS
0.20%
0.00%
+------r-----,---,.----r-------,----,----r-----'
o
2
4
6
8
Seasoning
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Moody's Investors Service
10
12
14
60+/0riginal Balance ARM 05
0.70% •.....................................................................................................................................................................
.......................................................................................................................................................
?
0.60%
-Jumbo
0.50%
BOAMS
CW
0.40%
FHA
-RFC
0.30%
-THORNBURG
0.20%
-WAMU
WELLS
0.10%
0.00%
+---~-
o
5
10
Seasoning
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Moody's Investors Service
15
20
90+IOriginal Balance ARM 05
0.90%
0.80%
-JUMBO
0.70%
BOAMS
0.60%
CW
0.50%
FHA
-THORNBURG
0.40%
-RFC
0.30%
-WAMU
0.20%
WELLS
0.10%
0.00%
0
5
10
15
20
Seasoning
Best Performance: Wells - WAMU - RFC - BOA
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FRM
PERFORMANCE REVIEW
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Moody's Investors Service
30-59 Delinquency FRM 01
1.80%
1.60%
1.40%
---1 -- ------------------------------------------------------------1 - ------------------------------------------------------------
-JUMBO
BOAMS
Cendant
1.20%
CHASE
1.00%
FHA
0.80%
-RFC
0.60%
-WAMU
0.40%
WELLS
0.20%
0.00% +-------..,.....-----..,.....------"
o
10
20
30
Seasoning
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Moody's Investors Service
40
50
60
60+/0riginal Balance FRM 01
0.80% , ...........................................................................................................................................................................................................................................................................................................................................................................................................................................,
-JUMBO
0.70%
BOAMS
0.60%
Cendant
CHASE
0.50%
-CMSI
0.40%
CW
0.30%
FHA
-RFC
0.20%
-WAMU
0.10%
0.00%
WELLS
~L-----r---
o
10
20
30
Seasoning
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Moody's Investors Service
40
50
60
90+/0riginal Balance FRM 01
0.70%
0.60%
-JUMBO
BOAMS
0.50%
CHASE
-CMSI
0.40%
CW
0.30%
FHA
-RFC
0.20%
-WAMU
0.10%
WELLS
0.00%
0
10
20
30
40
50
Seasoning
Best Performance: RFC - WAMU - Wells
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30-59 Delinquency FRM 02
1.40%
-JUMBO
1.20%
-BOAMS
1.00%
CENDANT
CHASE
0.80%
CW
0.60%
--FHA
0.40%
-RFC
.......... WAMU
0.20%
WELLS
0.00% + - - - , - - - - - - - r - - - - - - , - - - - ; - - - - " " ' - - , = = - -
o
5
10
15
20
25
Seasoning
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Moody's Investors Service
30
35
40
45
50
60+/0riginal Balance FRM 02
0.45% ,..........................................................................................................................................................................................................................................................................................................................................................................................
1
-JUMBO
BOAMS
0.40%
0.35%
Cendant
0.30%
CHASE
0.25%
-CMSI
CW
0.20%
FHA
0.15%
-RFC
0.10%
-WAMU
WELLS
0.05%
0.00%
+---
o
10
20
30
Seasoning
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Moody's Investors Service
40
50
90+/0riginal Balance FRM 02
0.35%
0.30%
-JUMBO
-BOAMS
0.25%
CHASE
-CMSI
0.20%
CW
0.15%
-FHA
-RFC
0.10%
-WAMU
0.05%
WELLS
0.00%
0
10
20
30
40
50
Seasoning
Best Performance: WAMU - RFC - Wells - Chase
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Moody's Investors Service
30-59 Delinquency FRM 03
1.00%
..
..
..
.. ..
.. ..
.. ..
.. ..
..
,~~~~~.~~~~.~~~.~~~.~~~~~~~.~~~ ~~~~~~.~~~ ~~~.~~~.~~~~~~~.~~~ ~~~ ~~ ~~~~~~ ~~ ~~~~~~ ~~ ~~~ ~~ ~~~~~~ ~~.~~~~,
0.90%
-Jumbo
0.80%
-BOAMS
0.70%
CHASE
0.60%
-CMSI
0.50%
CW
0.40%
FHA
0.30%
-RFC
0.20%
WELLS
0.10%
0.00% +-------~----~------~------~------~----~------~--
o
5
10
15
20
Seasoning
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Moody's Investors Service
25
30
35
40
60+/0riginal Balance FRM 03
0.35%
0.30%
-JUMBO
-BOAMS
0.25%
CHASE
0.20%
-CMSI
CW
0.15%
-FHA
0.10%
-RFC
WELLS
0.05%
0.00%
0
5
10
15
20
25
Seasoning
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Moody's Investors Service
30
35
40
45
90+/0riginal Balance FRM 03
0.35%
0.30%
-JUMBO
-BOAMS
0.25%
CHASE
0.20%
-CMSI
CW
0.15%
-FHA
0.10%
-RFC
WELLS
0.05%
0.00%
0
5
10
15
20
25
30
35
40
45
Seasoning
Best Performance: Wells - Chase - RFC
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Moody's Investors Service
30-59 Delinquency FRM 04
1.00%
-JUMBO
-BOAMS
0.80%
CHASE
CW
0.60%
-FHA
-RFC
0.40%
-WAMU
WELLS
0.20%
0.00% + - - - - - - , - - - - - - , - - - - - - , . . . - - - - - - , - - - - - ' - - - - - - ' 1
o
5
15
10
Seasoning
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Moody's Investors Service
20
25
60+/0riginal Balance FRM 04
0.45%
0.40%
-JUMBO
0.35%
-BOAMS
0.30%
CHASE
-CMSI
0.25%
CW
0.20%
-FHA
0.15%
-RFC
0.10%
-WAMU
WELLS
0.05%
0.00%
0
5
10
15
20
Seasoning
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Moody's Investors Service
25
30
35
90+/0riginal Balance FRM 04
0.30%
-r•••••.••••••••••••••••..••••••••••••••••..••••••••••••••••..••••••••••••••••..••••••••••••••••..••••••.•••••••••..••••••••••••••••..••••••••••••••••..••••••••••••••••..••••••••••••••••.••••••••••,
-JUMBO
0.25%
-BOAMS
CHASE
0.20%
-CMSI
0.15%
CW
-FHA
0.10%
-RFC
-WAMU
0.05%
WELLS
0.00%
0
5
10
15
20
25
30
35
Seasoning
Best Performance: RFC - Wells - WAMU
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Moody's Investors Service
30-59 Delinquency FRM 05
1.200%
T·····················································.....................................................................................................................................................................................................................................................................................................................................
1
-JUMBO
BOAMS
1.000%
Cendant
0.800%
CHASE
-CMSI
0.600%
CW
0.400%
FHA
-RFC
0.200%
-------------/
- - --
WELLS
.
o
2
4
6
8
Seasoning
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12
14
60+IOriginal Balance FRM 05
0.60%
0.50%
-JUMBO
-BOAMS
0.40%
-CMSI
CW
0.30%
-FHA
0.20%
-RFC
WELLS
0.10%
0.00% + - - - - -
o
5
10
Seasoning
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15
20
90+/0riginal Balance FRM 05
0.35%
-JUMBO
0.30%
BOAMS
0.25%
CHASE
-CMSI
0.20%
CW
0.15%
FHA
-RFC
WELLS
o
5
10
15
20
Seasoning
Best Performance: RFC - BOA - Wells - Chase
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90+/0riginal Balance ARM 06
0.35%
0.30%
0.25%
0.20%
0.15%
0.10%
0.05%
0.00%
-JUMBO
-WMVlU
-RFC
CW
WELLS
0
2
4
6
Seasoning
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8
10
90+/0riginal Balance FRM 06
0.50% , ...........................................................................................................................................................................................................................................................,
0.40%
-JUMBO
0.30%
CHASE
0.20%
CW
0.10%
WELLS
0.00% +------r----r---===-==:.:::;:-::.-::~~~--~
o
2
4
Seasoning
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6
8
10
30-59 De I Arm 06
2.00% , ..............................................................................................................................................................................................................................,
-JUMBO
1.50%
CW
1.00%
-RFC
0.50%
0.00%
-THORNBURG
+----,----;-----,----,-------1
o
2
4
6
Seasoning
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8
10
-WMVlU
WELLS
30-59 De I FRM 06
2.00% , ................................................................................................................................................................................................................................................................................................................,
-JUMBO
1.50%
-BOAMS
1.00%
CHASE
-CMSI
0.50%
CW
0.00%
+---r-----r--~
o
2
3
-RFC
4
Seasoning
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6
7
8
WELLS
60+/0riginal Balance
1.00% , .....................................................................................................................................................................................................................................
0.80%
-JUMBO
0.60%
CW
0.40%
-RFC
0.20%
0.00%
_______________ ~
.....,,7'...,______ _
-l----,-----;:~=:;;;;~~==-:::::::;..-----J
o
2
4
6
Seasoning
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8
10
-THORNBURG
-WMVlU
WELLS
60+/0riginal Balance
0.60% , ...................................................................................................................................................................................................................................................................................,
0.50%
-JUMBO
0.40%
-BOA
0.30%
CHASE
-
~:~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~7~ ~ ~ ~ ~ ~ ~ ~-
-CMSI
0.00%
-RFC
-l-----,-----.,--~-:;,..:::==:;::=~~:::~--~
o
2
4
6
Seasoning
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8
10
CW
WELLS
Pool Factor Arm 06
100. 00%
T""""""""""""""""""""""""""""""""""""""""""""""""""""""""" """"""""""""""" """""""""""""""" """""""""""""""" """ """[
-JUMBO
98.00%
CW
-RFC
96.00%
94.00%
THOURNBURG
-WAMU
92.00%
90.00%
88.00%
WELLS
-t-----,----,----,-------i
o
2
4
Seasoning
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6
8
Pool Factor FRM 06
102.00%
101.00%
100.00%
99.00%
98.00%
97.00%
96.00%
95.00%
94.00%
~~~~~~~~~~~~~~~~~
-JUMBO
WELLS
CW
CMSI
BOAMS
CHASE
-RFC
+-~~~~~~~,--~~~,--~~--I
o
2
4
Seasoning
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8
RECOMMENDATIONS
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Overall Performance
ARM
Vintage
Best Performers (Ranked)
FRM
Vintage
Best Performers (Ranked)
2001
Countrywide - RFC
2001
RFC - WAMU - Wells
2002
RFC - WAMU - Wells
2002
WAMU - RFC - Wells - Chase
2003
Wells - WAMU - BOA
2003
Wells - Chase - RFC
2004
Wells - RFC - WAMU - BOA
2004
RFC - Wells - WAMU
2005
Wells - WAMU - RFC - BOA
2005
RFC - BOA - Wells - Chase
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Recommendations
FRM
ARM
M3
Issuer
M3
Issuer
96%
WAMU - Wells - RFC
96%
RFC - Wells
98%
BOA
98%
WAMU - BOA - Chase
100%
Countrywide - Chase
100%
Cou ntrywide
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Final Recommendations
• Based on consensual approval from
all committee members:
M3
950/0
Issuer
Wells - RFC
97.50/0 BOA - WAMU - Chase
1000/0
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Countrywide
AN N EX - Pool Factors
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Pool Factor ARM 01
100.00%
90.00%
80.00%
70.00%
60.00%
-JUMBO
BOAMS
50.00%
CW
40.00%
-RFC
30.00%
-WAMU
20.00%
10.00%
0.00%
0
10
20
30
Seasoning
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40
50
60
Pool Factor ARM 02
120.00%
100.00%
-JUMBO
BOAMS
80.00%
CW
60.00%
-RFC
-WAMU
WELLS
40.00%
20.00%
0.00%
0
10
20
30
Seasoning
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40
50
Pool Factor ARM 03
100. 00%
~T""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" """"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""1
90.00%
80.00%
~-o..:c-
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
60.00%
-JUMBO
BOAMS
50.00%
CW
40.00%
-WAMU
WELLS
70.00%
30.00%
20.00%
10.00%
0.00%
+---,-----,-----,-----,-----,-------,-----,-----1
o
5
10
15
20
Seasoning
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25
30
35
40
Pool Factor ARM 04
120.00%
100.00%
------- -------- ------- ------- ------- ------- ------- ------- -------
80.00%
60.00%
40.00%
20.00%
0.00%
0
5
10
15
20
Seasoning
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25
30
35
40
-JUMBO
BOAMS
CW
-RFC
-WAMU
WELLS
-JUMBO
BOAMS
CW
-WAMU
WELLS
Pool Factor ARM 05
100.00%
80.00%
-
-------------===~~~-~-~~~~-~~:d-
60.00%
BOAMS
CW
-RFC
-WAMU
40.00%
WELLS
20.00%
0.00%
-JUMBO
+---------,-------,----------]
o
5
10
Seasoning
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15
Pool Factor FRM 01
100.00%
-JUMBO
BOAMS
80.00%
CHASE
60.00%
CW
-RFC
40.00%
-WAMU
WELLS
20.00%
0.00% +----_,_-------r----=--~---,_---_,_~-~---1
o
10
20
30
40
50
60
Seasoning
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Pool Factor FRM 02
120.00%
100.00%
-JUMBO
BOAMS
80.00%
CHASE
60.00%
CW
-RFC
40.00%
-WAMU
WELLS
20.00%
0.00%
0
10
20
30
Seasoning
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40
50
Pool Factor FRM 03
100. 00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
- r " " " " " """"""""" """"""""" """"""""" """"""""" """"""""" "" """"""" """"""""" """"""""" """"""""" """"""""" """"""""" "" """"""" """"""""" """"""""" """"""""" """"""""" """"""""" "" """"""" """"""""" """"""""""'
-JUMBO
BOAMS
CHASE
CW
----------------------~----~---~~~
-----------------------------------------------------
-
~
-RFC
WELLS
+------,-------,---------r--------1
o
10
20
Seasoning
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30
40
Pool Factor FRM 04
100.00%
------ -~~=~--..J
80.00%
~
60.00%
~
I-BOAMS
CHASE
CW
-----------------------------------------------------------,-
-RFC
40.00%
-WAMU
20.00%
0.00%
-JUMBO
WELLS
+-------r------,-----,-------,--------j
o
5
10
15
Seasoning
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20
25
Pool Factor FRM 05
100.00%
90.00%
80.00%
-
70.00%
-
60.00%
50.00%
-
-----------~
-
40.00%
-
30.00%
-
20.00%
-
10.00%
-
-RFC
WELLS
0.00%
0
-JUMBO
I-BOAMS
CHASE
CW
2
4
6
8
Seasoning
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12
14
Subprime Originator Factor - Analysis
Initial Recommendation:
To apply a factor of between 7.5% to -7.5% (7.5%,5%,
2.5%,0%, -2.5%, -5%, -7.5%); though the extreme factors would only be for very good /
very very weak originators, backed by performance.
Initial Analysis:
Based on the initial information we collected, it seems that most of
the originators (13/24) are classified as Average and within this average group, the
variance is not that substantial. Few originators are classified as "above average"
(countrywide, FF, 00, WMC). As to the remainder of the originators, they are below
average. The difference between those weaker originators vary more though.
Originator
Overall
Countywide
Above Average
5%
First Franklin
Above AveraQe
5%
Option One
Above Average
5%
WMC
Above average
5%
New Century
Average
+
Long Beach
Average
+
Wells
AveraQe
+
Ameriquest - wholesale (Argent)
Average
Ameriquest - retail
Average
RFC
Average
Fremont
AveraQe
-
Accredited
Average
+
Centex
Average
Novastar
Average
Popular
Average
Saxon
AveraQe
-
Decision One
Average
FieldStone
Average / Below Average
-2.5%
Aegis
Average / Below Average
-2.5%
Aames
Average/Below Average
TBD
Ownit
Below averaQe
-5.0%
EquiFirst
Below Average
-2.5%
People's Choice
Below average
-5.0%
Encore
Below Average
-5.0%
1
The Factors we considered:
We have looked at operations related factors (appraisals, underwriting guidelines including FICO related factors, documentation etc., and QC process).
We also looked at the companies' financial strength (including their ratings, if available
and how long they have been a player in the market, do they originate subprime loans
only? Do they have a retail business?)
We also looked their motivations/goals/target borrowers.
Overall assesment
(Average levels, below average,
Above average)
FICO
report middle of 3/10west of 2
qualify based on mid of 3/10w 2
Min FICO
Levels - notches
(e.g one notch below average)
Documentation
(Average, Above Average, etc.)
Collateral Characteristics
(e.g. average than higher FICOs)
+ reason
Exceptions %
Performance
(Average, Above Average, etc.)
Overall guidelines assesment
(Tight guidelines? Weak?)
Financial Strenght
Originator Rating, if any
Kick-outs % from aggregators
QC I Audit processes
Retail %
Wholesale %
% of loans audited
Target borrowers
Appraisal practices
Overall assesment
pre funding review of apps (%)
post funding review of apps (%)
reviews on high value loans
other type of loans reviewed
Originates Subprime only?
Started securitizing in year
Started operating in year
type of review
Other company specifics
tolerance
if outside tolerance, addnt review?
2nd apprsails obtained if bal is
over (xxx)? (please complete #)
using outside vendors
(e.g. CoreLogic)
centralized appraisals pick
(pre-selected or random pick)
Appraisals include interior photos?
factors
2
Financial Strength:
Originator
Overall
Financial
Rating
Strong
A2
Securitizing
Operating
1995
1981
1999
1992
Countywide
Above Average
First Franklin
Above Average
Option One
Above Average
WMC
Above average
Above average
GE?
New Century
Average
Below Average
B1
1995
1995
1999
Average
Strong. Option One's parent is HR
Block /
HR blckA3
Long Beach
Average
Strong
A3 forWaMu
2001
Wells
Average
Very Strong
Aaa
1996
Ameriquest - wholesale (Arqent)
Averaqe
Averaqe
2003
2003
Ameriquest - retail
Average
Average
1996
1979
RFC
Average
Average
1998
Fremont
Average
Below Average
B1
1994
1999/
2003
Public NR
1996/2000
1990
1998
1998
1997
1997
Accredited
Averaqe
Averaqe
Centex
Average
Average
Novastar
Average
Average
Popular
Average
Above Average
Saxon
Averaqe
Below Averaqe
Decision One
Average
Above Average
FieldStone
Average / Below Average
Aegis
Average / Below Average
Aames
Ownit
EquiFirst
1997
1989
B2 - Saxon Capital
1996
1989
Strong Parent
1999
1999
Average
2003
1996
Average
2003
1993
Average/Below Average
Below Average
2003
1980s?
Below averaqe
Below Averaqe
2004
2003
Below Average
Above Average
Parent - single A
A1-Parent-Regions
Bank
1990
People's Choice
Below average
Average
2004
2004
Encore
Below Average
Below Average
2003
2002
3
Operations:
Ori~inator
u/~
Overall
Appraisals
Above average
Average
Average - above average
Average?
Countywide
Above Average
First Franklin
Above Average
Option One
Above Average
WMC
Above average
New Century
Avera~e
Above Average
Above
Avera~e
Overall
assessement
Average
15% exceptions
Avera~e
10% exceptions
QC above
average
Long Beach
Average
Average
Wells
Average
Average
Average
Ameriquest - wholesale (Argent)
Average
Average
Average
Not tight
Ameriquest - retail
Avera~e
Avera~e
Avera~e
RFC
Average
Average
Good
Fremont
Average
Accredited
Average
Average
Average
Centex
Avera~e
Avera~e
Avera~e
Novastar
Average
Average
Average
Popular
Average
Average
Average
Saxon
Average
Average
Average
Decision One
Average
Average
Average
FieldStone
Average I Below Avera~e
Average
Average
Average
Aegis
Average / Below Average
Average
Aames
Average/Below Average
Average
Average
Ownit
Below average
Above average?
Average
Average
Average
EquiFirst
Below Average
People's Choice
Below average
Encore
Below average
Notes
QC above
average
20-25% exception
4
The Average group: Within the average group, the characteristics seem fairly
consistent. If we will use a factor based model, we may end up notching up some of those
players (e.g. Wells, NC).
Operations:
For appraisals and other operation related factors, it seems that almost all
originators are ranked by the analysts as average. We will need to get more detailed
information, including performance, in order to differentiate.
Financial Strength: Most of the average companies have average financial strength
(7/13). Most of them have been securitizing since the mid/late 90ies (with the exception
of Argent (2003) and Long Beach (2001).
The exceptions are New Century and Fremont whose rating is Bland Saxon - B2.
However, NC have been around since 1995 and their practices are average. New Century
also seems to have has above slightly average appraisal practices. Saxon started operating
at 1989 and securitizing since 1996. Note, however, the high exceptions % for Saxon.
As to strong financial strength, the exceptions are Wells (Aaa); Long Beach (Wamu A3);
and Popular (fna equityfirst). However, their operations seem average.
The too 2roup:
We have 4 issuers who are considered above average:
Countrywide, FF, 00 and WMC.
All except WMC have strong financial strength; all have strong appraisal practices (not
sure about FF). All except 00 have strong performance. Guidelines, however, seem to
all be average and not tighter than average.
Recommendation for the top group: it seems that unless there will be material
performance difference between those 4, there is no need to differentiate between them
and we recommend levels of 5% above average (~one notch).
The weaker group:
The weaker group includes 7 originators (out of24). The characteristics of the group
seem to vary and we note that some of the originators are included in this group mainly
due to lack of substantial/recent performance (Ownit, Fieldstone, Equifirst).
Operations: For appraisals and other operation related factors, it seems that all those
weak originators are ranked by the analysts as average. We will need to get more
detailed information in order to differentiate.
5
Financial Strength:
All the weak originators have been securitizing only for a few years only although some
have been around from the 90ies.
In terms of financial strength, some of those originators have average financial strength
(Aegis, Fieldstone, People' s Choice) and some below average financial strength (ownit,
encore). Only one originator in this group has above average financial strength: Equifirst
(regions bank - AI; operated since 1990).
Recommendation for the weak group:
If indeed, once we get more detailed
information about the operations and appraisals, there are no material differences
between all the originators in this group, we would make a differentiation based on
financial strength and performance. If the financial strength is average, and the originator
is considered weak because oflack of substantial performance - recommending -2.5%.
Iffinancial strength is weak and there is no performance or bad performance: -5% to 7.5%.
Notes:
Aggregators:
The aggregators, although they have a large share of the subprime issuance market, have
not yet been included in this analysis.
When they aggregate collateral from an originator we analyzed, the originator factor
assigned to that originator will be applied. As to the small originators, the initial
recommendation would be to assign average factor to them.
6
Originator
M3 Adjustment
Notes
2
First Horizon
-2.50%
3
American Home Mortgage
5.00%
4
Quicken
15.00%
5
Impac
30.00%
5% add'i hit for option ARM
6
Alliance Bancorp
40.00%
10% add'i hit for cashout
7
Greenpoint
10.00%
8/24/2007
8
Aurora
10.00%
8/24/2007
9
National City
10.00%
9/1112007
6% add'i hit for option ARM
A
2
Wells Fargo *
1
C
M3
Adjustment
-5.00%
3
Thornburg
1
-25.00%
4
Citi Mortgage *
1
-5.00%
5
Bank of America *
[1]
-5.00%
6
FHA
2
-2.50%
7
RFC
2
-2.50%
8
Wamu
2
-2.50%
9
Count!:YY)1ide
3
0.00%
10
J P Morgan Chase
3
0.00%
1
Originator
B
Originator
Quality
Originator
Originator
Quality
M3 Adjustment
CES levels (if
different than M3
adjustment)
Performance of Main lumbo Issuers
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Moody's Investors Service
Agenda
• Summary of Main lumbo players and collateral
characteristics
• Performance by vintage broken out by FRM/ ARM
based on:
- 30-59 days delinquency
- 60+ delinquency as
%
of Original balance
- 90+ delinquency as % of Original balance (inc.
Foreclosure and REO)
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• Summary & Recommendations
~
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Moody's Investors Service
Main Jumbo Issuers in 2004 and 2005
2006 (up to 09/06) Amount in $B
1
2
3
4
5
6
7
8
9
10
Wells Fargo
JP Morgan
Thornburg
Countrywide
Bank of America
RFC
CiticorpMtgSeclnc
Citigroup (CML T)
Washington MutUi
Merrill Lynch
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
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1
2
3
4
5
6
7
8
9
10
2005
Amount in $B
Wells Fargo
Goldman Sachs
JP Morgan
Bank of America
Countrywide
Bear Stearns
Merrill Lynch
Washington Mutu
Thornburg
RFC
36.2
16.9
15.8
15.2
12.9
10.4
7.1
6.6
5.5
5.2
1
2
3
4
5
6
7
8
9
10
2004
Amount in $B
Wells Fargo.
Bank of America
WaMu
Goldman Sachs
Countrywide
Merrill Lynch
Sequoia
CitiMortgage
JP Morgan
UBS
25.0
17.3
14.2
10.4
9.8
9.5
8.9
6.0
5.6
5.0
Servicer Rating Adjustments
•
On top of Performance benefit and capped at 5%
CE Adjustments based on the SQ Rating of the Primary Servicer
Servicer's SQ Rating or equivalent
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CE Adjustments
SQl
-2.5%
SQ1-
-1.65%
SQ2+
-0.85%
SQ2
0%
SQ2-
+0.85%
SQ3+
+ 1.65%
SQ3
+2.5%
SQ3-
+3.5%
SQ4+, SQ4. SQ4-
5-10%+
SQ5
Case specific
--~--
Moody's Investors Service
Collateral Characteristics
FRM
1 Observed Avg FICO
2 Observed Avg LTV/CLTV
3 Origination chanel: RIW (%)
WELLS
BOA
CHASE
740-750
745-750
68/71
WAMU
CW
RFC
Citi
FH
730-740
735-745
725-735
742
745
67172
68/7
73/74
70174
66/69
72
7
65/35
45/55
30/70
0/100
10010
55145
ECS
Capstone
ZIPPY
CLUES
Proprietary
Proprietary
DU &LP
5 Appraisal Requirements
$1.5M
$1.25M
$1M
$1M
$1M
$1.5M
$1.5M
6 Avg concentration in CA
40%-50%
40%-50%
30%-40%
40%-50%
30%-40%
30-40%
20% - 25%
30%
0%
0%
20%
25%
15%
25%
4 Underwriting Engine (DU,LP, Proprietary)
7 Avg 10 %/40yrs
8 Avg Investor Properties
0%
0%
0%-1%
9 Servicer Rating
SQ1
SQ1
SQ1
Thorn.
0%-1%
0%
0%
0%
Private (SQ2)
SQ1
SQ1
SQ1
SQ2+
N/A
Citi
FH
Thorn.
ARM
1 Observed Avg FICO
2 Observed Avg LTV/CLTV
3 Origination chanel: RIW (%)
4 Underwriting Engine (DU,LP, Proprietary)
WELLS
BOA
CHASE
WAMU
CW
RFC
740-750
745-750
740-750
735-745
720-730
730-740
740
>740
69/73
72175
70/7
67/68
71/78
72178
72
65-70
7
65/35
45/55
7
30/70
0%/100%
55/45
Corres.
ECS
Capstone
ZIPPY
Proprietary
CLUES
Proprietary
DU &LP
Human
5 Appraisal Requirements
$1.5M
$1.25M
$1M
$1M
$1M
$1.5M
$1.5M
6 Avg concentration in CA
40%-50%
40%-50%
30%-40%
60%-70%
40%-50%
30%-40%
25%-30%
25%-30%
7 Avg 10 %/40yrs
30%
70%
75%
95%
90%
80%
85%
95%
8 Avg Investor Properties
4%
0%-1%
0%-1%
0%-1%
0%-1%
0%
0%-3%
10%
9 Servicer Rating
Current Post ion relative to M3 (perf. Only)
SQ1
SQ1
SQ1
Private (SQ2)
SQ1
SQ1
SQ1
SQ2+
N/A
-5.0%
-2.5%
-2.5%
-2.5%
0%
-5.0%
0%
0%
-25%
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
0
Jumbo Index Composition
_._J_
----_.--_
.. --~-------~
Ishell
ABNAMRO
BoAFunding
BOAMS
BSARM
Cendant
ChaseMortgageFinanceTrust
ChevyChaseFunding
CHLMortgage
CiticorpMtgSecInc
CitigroupMtgLoanTrust
CSFB
CWMBS
DeutscheMtgSec
ETRADE
FirstHorizonMtgPassThrough
FirstRepublicMtgLoanTrust
FNT
GMACM
GSRMtgLoanTrust
IndyMacINDA
JPMorganMtgLoanTrust
MASTRARMTrust
MASTRAssetSecTrust
MLCC
MLMI
MRFCMtg
MSDWCapital
NewYork
PHHMtgCapital
PNCMtgSecCorp
PrimeMtgTrust
ProvidentFundingMtgLoanTrust
RAST
RFMSI
SalomonMtgLoanTrust
Sequoia
Thornburg
WAMU MSC
WAMUMtg
WelisFargo
ZionsResidentialMtgLoanTrust
Zuni
Grand Total
Moody's Investors Service
2001
2002
2003
2004
2005
2006
4.7%
0.0%
9.1%
12.9%
0.9%
2.6%
0.0%
6.0%
0.4%
0.0%
1.5%
6.8%
0.0%
2.3%
2.5%
0.6%
0.8%
0.7%
0.6%
0.0%
0.0%
0.3%
0.8%
1.0%
0.0%
2.0%
0.4%
0.0%
0.0%
1.0%
0.0%
0.0%
0.0%
8.5%
0.7%
0.7%
1.4%
4.8%
11.2%
14.4%
0.4%
0.0%
100.0%
1.5%
0.0%
6.4%
7.0%
0.9%
1.7%
0.0%
9.3%
0.7%
0.0%
6.6%
0.0%
0.0%
0.0%
2.6%
0.8%
0.0%
1.8%
5.6%
0.0%
0.0%
1.2%
4.6%
0.0%
1.0%
0.5%
0.6%
0.0%
0.0%
0.0%
0.0%
0.0%
0.7%
3.4%
0.3%
5.0%
1.4%
3.3%
26.1%
7.1%
0.0%
0.0%
100.0%
2.0%
0.9%
9.1%
5.9%
0.0%
2.3%
1.6%
14.2%
2.0%
0.1%
10.6%
0.0%
0.0%
0.0%
2.2%
0.0%
0.0%
1.2%
2.7%
0.0%
0.2%
0.1%
1.7%
6.7%
2.4%
0.0%
0.2%
0.0%
0.0%
0.0%
0.6%
0.3%
0.0%
2.6%
0.0%
4.8%
3.1%
0.6%
12.5%
9.4%
0.0%
0.0%
100.0%
0.0%
0.2%
8.4%
3.4%
0.0%
1.0%
4.8%
12.4%
2.1%
1.0%
0.8%
1.1%
0.1%
0.0%
1.3%
0.0%
0.0%
2.7%
4.2%
0.0%
1.5%
2.3%
0.5%
6.7%
0.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
0.3%
0.0%
1.3%
0.0%
8.1%
3.8%
0.0%
10.5%
21.0%
0.0%
0.0%
100.0%
0.0%
2.2%
5.8%
3.9%
0.0%
2.0%
3.6%
7.1%
3.7%
1.3%
2.4%
0.0%
0.0%
0.0%
1.8%
0.0%
0.0%
1.8%
5.3%
0.2%
7.1%
0.0%
0.3%
3.8%
1.3%
0.0%
0.0%
0.0%
0.1%
0.0%
0.4%
1.3%
0.0%
4.3%
0.0%
1.2%
5.6%
0.0%
4.7%
28.6%
0.0%
0.0%
100.0%
0.0%
5.4%
1.2%
1.2%
0.0%
4.2%
0.0%
7.6%
3.5%
2.6%
0.0%
0.8%
0.0%
0.0%
0.5%
0.0%
0.0%
0.6%
3.7%
0.0%
11.4%
0.0%
1.1%
1.4%
0.3%
0.0%
0.0%
0.3%
0.0%
0.0%
0.0%
0.0%
0.0%
4.3%
0.0%
0.0%
10.7%
0.0%
1.8%
35.8%
0.0%
1.6%
100.0%
0
Deals per Originator
Number of Deals
Wells
Countrywide
B of A
Wa Mu
RFC
FHA
Citi
Chase
Thornburg
Cendant-PHH
_._J_
----_.--_
.. ----
132
112
74
72
51
32
24
24
18
5
Total number of deals is 818
~
--~--
Moody's Investors Service
ARM
PERFORMANCE REVIEW
_._J_
----_.--_
.. ---~
--~--
Moody's Investors Service
30-59 Delinquency ARM 01
1.20%
-r-~~~~~~~~~~~~~~~~~~~~~
-JUMBO
BOAMS
1.00%
0.80%
CW
0.60%
-RFC
0.40%
-THORNBURG
......... WAMU
0.20%
O. 00%
+--L.-~...a...,---,,--,,-~,.--
o
10
20
30
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
40
50
60
60+IOriginal Balance ARM 01
0.45%
0.40%
0.35%
-Jumbo
0.30%
BOAMS
0.25%
CW
0.20%
-RFC
0.15%
-Thornburg
-WAMU
0.10%
0.05%
0.00%
0
10
20
30
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
40
50
60
90+IOriginal Balance ARM 01
0.30%
0.25%
-JUMBO
BOAMS
0.20%
CW
0.15%
-RFC
--
-THORNBURG
-WAMU
0.10%
0.05%
--
0.00%
o
10
20
30
40
50
60
Seasoning
Best Performers
CW - RFC - Thornburg
Average
BOA -lumbo
Weak Performers
WAMU
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30-59 Delinquency ARM 02
1.20% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
-BOAMS
1.00% - - - - -
CENDANT
CW
0.80% - - - 0.60%
-JUMBO
-FHA
----
-RFC
-THORNBURG
040% - - - - - -
-WAMU
0.20% - - - - - - - - -
o
5
WELLS
10
15
20
25
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30
35
40
45
50
60+/0riginal Balance ARM 02
0.60%
-Jumbo
0.50%
-BOAMS
Cendant
0.40%
CW
-FHA
-RFC
-THORNBURG
........... WAMU
WELLS
0.30%
0.20%
0.10%
0.00%
0
10
20
30
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
40
50
90+/0riginal Balance ARM 02
0.40%
-JUMBO
0.35%
BOAMS
0.30%
CW
0.25%
FHA
0.20%
-RFC
0.15%
-THORNBURG
-WAMU
0.10%
WELLS
--
0.05%
0.00%
-f---
o
10
20
30
40
50
Seasoning
Best Performers
RFC - Thornburg - Wells
Average
WAMU - FHA - lumbo
Weak Performers
CW - BOA - Cendant
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30-59 Delinquency ARM 03
1.00%
-JUMBO
-BOAMS
0.80%
CW
0.60%
FHA
0.40%
WELLS
0.20%
0.00% +------'
o
5
10
15
20
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
25
30
35
40
60+/0riginal Balance ARM 03
0.45%
0.40%
0.35%
-Jumbo
0.30%
-BOAMS
CW
0.25%
FHA
-THORNBURG
-WAMU
WELLS
0.20%
0.15%
0.10%
0.05%
0.00%
0
5
10
15
20
25
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30
35
40
45
90+/0riginal Balance ARM 03
0.30%
0.25%
-JUMBO
BOAMS
0.20%
CW
FHA
-THORNBURG
-WAMU
WELLS
0.15%
0.10%
0.05%
0.00%
o
5
10
15
20
25
30
35
40
45
Seasoning
Best Performers
Wells - FHA
Average
WAMU - Thornburg - BOA lumbo
_._J_
----_.--_
.. --~-------~
Weak Performers
Moody's Investors Service
CW
30-59 Delinquency ARM 04
1.40%
-JUMBO
-BOAMS
CW
-FHA
-RFC
-THORNBURG
-WAMU
WELLS
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
0
5
10
15
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
20
25
60+/0riginal Balance ARM 04
0.80%
0.70%
-Jumbo
0.60%
BOAMS
CW
FHA
-RFC
-THORNBURG
-WAMU
WELLS
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
0
5
10
15
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
20
25
30
90+IOriginal Balance ARM 04
0.50%
BOAMS
0.40%
CW
FHA
-THORNBURG
-WAMU
WELLS
0.30%
0.20%
0.10%
o.oo%L-~~~
o
5
15
10
20
25
Seasoning
Best Performers
Wells - Thornburg
Average
RFC - WAMU - BOA - lumbo
- FHA
_._J_
--~
--_.--_
.. --~--------
Weak Performers
Moody's Investors Service
CW
30-59 Delinquency ARM 05
1.60%
1.40%
-JUMBO
-BOAMS
1.20%
1.00%
CW
-RFC
0.80%
-THORNBURG
......... WAMU
WELLS
0.60%
0.40%
0.20%
0.00%
0
2
4
6
8
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
10
12
14
60+/0riginal Balance ARM 05
0.60%
-Jumbo
BOAMS
CW
FHA
-RFC
-THORNBURG
-WAMU
WELLS
0.50%
0.40%
0.30%
0.20%
0.10%
o. 00%
+---~~~~~=--=--=------,--
o
5
10
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
15
20
90+/0riginal Balance ARM 05
0.90%
0.80%
-JUMBO
0.70%
BOAMS
0.60%
CW
0.50%
FHA
0.40%
-THORNBURG
0.30%
-RFC
-WAMU
0.20%
WELLS
0.10%
0.00%
0
5
10
15
20
Seasoning
_._J_
----_.--_
.. --~-------~
Best Performers
Wells - Thornburg - lumbo
Average
WAMU - BOA - FHA - RFC
Weak Performers
CW
Moody's Investors Service
30-59 Delinquency Arm 06
-JUMBO
1.50%
CW
1.00%
-RFC
0.50%
-THORNBURG
-WAMU
o
2
4
6
Seasoning
_._J_
--~
--_.--_
.. --~--------
Moody's Investors Service
8
10
WELLS
60+/0riginal Balance ARM 06
1.00%
0.80%
-JUMBO
0.60%
CW
0.40%
-RFC
THORNBURG
0.20%
-WAMU
0.00%
0
2
4
6
Seasoning
_._J_
--~
--_.--_
.. --~--------
Moody's Investors Service
8
10
WELLS
90+/0riginal Balance ARM 06
0.40%
-JUMBO
0.30%
-WAMU
0.20%
-RFC
0.10%
CW
0.00%
WELLS
0
2
6
4
8
10
Seasoning
Best Performers
Wells - Thornburg
Average
WAMU - RFC - lumbo
Weak Performers CW
_._J_
--~
--_.--_
.. --~--------
Moody's Investors Service
FRM
PERFORMANCE REVIEW
_._J_
----_.--_
.. ---~
--~--
Moody's Investors Service
30-59 Delinquency FRM 01
2.00%
1.80%
1.60%
...
1.40%
-
-
-JUMBO
~
BOAMS
-
Cendant
1.20%
- - - j- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
1.00%
,f
CHASE
FHA
0.80%
-RFC
0.60%
-WAMU
0.40%
WELLS
0.20%
0.00%
0
10
20
30
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
40
50
60
60+/0riginal Balance FRM 01
0.80%
-JUMBO
0.70%
-BOAMS
0.60%
Cendant
0.50%
CHASE
-CMSI
0.40%
CW
0.30%
FHA
0.20%
-RFC
-WAMU
0.10%
WELLS
0.00%
0
10
20
30
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
40
50
60
90+/0riginal Balance FRM 01
0.70%
-JUMBO
0.60%
BOAMS
0.50%
CHASE
-CMSI
0.40%
CW
0.30%
FHA
-RFC
0.20%
-WAMU
0.10%
WELLS
0.00%
0
10
30
20
40
50
Seasoning
Best Performers
FHA - RFC - lumbo
Average
Wells - BOA - Citi - WAMU
Weak Performers
Chase - CW - Cendant
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30-59 Delinquency FRM 02
-JUMBO
1.20%
-BOAMS
1.00%
CENDANT
CHASE
0.80%
CW
0.60%
-FHA
0.40%
-RFC
-WAMU
0.20%
O. 00%
WELLS
+----,----r---,---,---"'-,=="----"f-~
o
5
10
15
20
25
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30
35
40
45
50
60+/0riginal Balance FRM 02
0.45%
-JUMBO
0.40%
-BOAMS
0.35%
Cendant
0.30%
CHASE
0.25%
-CMSI
0.20%
CW
0.15%
FHA
-RFC
0.10%
-WAMU
0.05%
WELLS
0.00%
0
10
20
30
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
40
50
90+/0riginal Balance FRM 02
0.35%
-JUMBO
0.30%
-BOAMS
0.25%
CHASE
-CMSI
0.20%
CW
0.15%
-FHA
-RFC
0.10%
-WAMU
0.05%
WELLS
0.00%
0
10
20
30
40
50
Seasoning
Best Performers
RFC - FHA - Wells - Cendant
Average
BOA - Citi - Chase - lumbo WAMU
_._J_
----_.--_
.. --~-------~
Weak Performers
Moody's Investors Service
CW
30-59 Delinquency FRM 03
1.00%
0.90%
-Jumbo
0.80%
-BOAMS
0.70%
CHASE
0.60%
-CMSI
0.50%
CW
0.40%
-FHA
0.30%
-RFC
0.20%
WELLS
0.10%
0.00%
0
5
10
15
20
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
25
30
35
40
60+IOriginal Balance FRM 03
0.35%
0.30%
-JUMBO
-BOAMS
CHASE
-CMSI
CW
-FHA
0.25%
0.20%
0.15%
0.10%
-RFC
WELLS
0.05%
0.00%
0
5
10
15
20
25
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30
35
40
45
90+/0riginal Balance FRM 03
0.35%
0.30%
-JUMBO
BOAMS
0.25%
CHASE
0.20%
-CMSI
CW
0.15%
FHA
0.10%
-RFC
WELLS
0.05%
0.00%
0
5
10
15
20
25
30
35
40
45
Seasoning
Best Performers
Wells - Citi
Average
RFC - BOA - lumbo - Chase FHA
_._J_
----_.--_
.. --~-------~
Weak Performers
Moody's Investors Service
CW
30-59 Delinquency FRM 04
1.20%
-JUMBO
1.00%
-BOAMS
0.80%
CHASE
CW
0.60%
-FHA
-RFC
0.40%
----WAMU
0.20%
WELLS
0.00%
0
5
10
15
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
20
25
60+IOriginal Balance FRM 04
0.45%
0.40%
-JUMBO
0.35%
BOAMS
0.30%
CHASE
-CMSI
0.25%
CW
0.20%
-FHA
0.15%
-RFC
0.10%
-WAMU
0.05%
WELLS
0.00%
0
5
10
15
20
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
25
30
35
90+/0riginal Balance FRM 04
0.30%
-JUMBO
0.25%
-BOAMS
CHASE
0.20%
-CMSI
0.15%
CW
-FHA
0.10%
-RFC
-WAMU
0.05%
WELLS
0.00%
0
5
10
15
20
25
30
35
Seasoning
Best Performers
Wells - RFC
Average
BOA - Citi - Wamu - lumbo
Weak Performers
CW - FHA - Chase
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30-59 Delinquency FRM 05
-JUMBO
1.000%
-BOAMS
Cendant
0.800%
CHASE
-CMSI
0.600%
CW
0.400%
-FHA
------------/----
0.200%
-RFC
WELLS
0.000% + - - - - - - r - - - - - , - - - - - - - , - - - - , - - - - - r - - - - - - , - - - - . , - - - - - '
o
2
4
6
8
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
10
12
14
60+IOriginal Balance FRM 05
0.60%
0.50%
-JUMBO
0.40%
BOAMS
0.30%
CW
FHA
0.20%
-RFC
WELLS
0.10%
o
5
10
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
15
20
90+IOriginal Balance FRM 05
0.40% -r---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------,
0.35%
-JUMBO
0.30%
BOAMS
0.25%
CHASE
-CMSI
0.20%
CW
0.15%
FHA
0.10%
-RFC
WELLS
0.05%
0.00% +-----=:~~
o
5
10
15
20
Seasoning
Best Performers
FHA
Average
Citi - RFC - BOA - Wells -
lumbo
_._J_
----_.--_
.. --~-------~
Weak Performers
Moody's Investors Service
CW - Chase
30-59 Del FRM 06
2.00 % -r~~~~~~~~~~~~~~"~~~~~~~~~~~~~~~~~~"~~~~~~~~~~~~~~~~~~"~~~~~~~~~~~~~~~~~~"~~~~~~~~~~~~~~~~~~"~~~~~~~~~~~~~~~~~,.~~~~~~~~~ ~~~~~~~~,.~~~~~~~~~ ~~~~~~~~,.~~~~~~~~~ ~~~~~~~~' ~~~~~~~~~~,
.•
.•
.•
-JUMBO
1.50%
BOAMS
1.00%
CHASE
-CMSI
0.50%
0.00%
-t-----r----r'--'F-'- -.,-----,------,---,------\
o
1
2
3
4
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
5
6
7
8
CW
-RFC
WELLS
60+/0riginal Balance FRM 06
0.60%
~~~~~~~~~~~~~~~~~
0.50%
0.40%
0.30%
-JUMBO
-BOA
CHASE
~:~~~ :·····················~z
0.00%
-CMSI
CW
-
o
2
4
6
Seasoning
_._J_
--~
--_.--_
.. --~--------
Moody's Investors Service
8
10
-RFC
WELLS
90+/0riginal Balance FRM 06
0.50%
~~~~~~~~~~~~~~~~
0.40%
-JUMBO
0.30%
CHASE
CW
WELLS
0.20%
0.10%
0.00%
-+-----.,-I-----1"I--=--------,I---Ir-------i
o
2
4
6
8
10
Seasoning
Best Performers
Wells - Citi - BOA
Average
RFC - CW - lumbo
Weak Performers Chase
_._J_
--~
--_.--_
.. --~--------
Moody's Investors Service
RECOMMENDATIONS
_._J_
----_.--_
.. ---~
--~--
Moody's Investors Service
Graph Overall Performance
ARM
Vintage
Best Performers
Below Average
Average
2001
CW - RFC - Thornburg
BOA
WAMU
2002
RFC - Thornburg - Wells
WAMU - FHA
CW - BOA - Cendant
2003
Wells - FHA
WAMU - Thornburg - BOA CW
2004
Wells - Thornburg
RFC - WAMU - BOA - FHA CW
2005
Wells - Thornburg
WAMU - BOA - FHA - RFC CW
2006
Wells - Thornburg
WAMU -RFC
CW
FRM
Vintage
_._J_
--~
--_.--_
.. --~--------
Best Performers
Average
Below Average
2001
FHA - RFC
2002
RFC - FHA - Wells - Cendant BOA - Citi - Chase - WAMU CW
2003
Wells - Citi
RFC - BOA - Chase - FHA
CW
2004
Wells - RFC
BOA - Citi - WAMU
CW - FHA - Chase
2005
FHA
Citi - RFC - BOA - Wells
CW - Chase
2006
Wells - Citi - BOA
RFC - CW
Chase
Moody's Investors Service
Wells - BOA - Citi - WAMU
Chase - CW - Cendant
Graph-Based Recommendations
ARM
M3
Issuer
T1
Wells - Thornburg
T2
FHA - RFC - (BOA - WAMU)
T3
CW
FRM
M3
Issuer
T1
Wells - FHA - Citi
T2
RFC - BOA - WAMU - Cendant
T3
CW - Chase
_._J_
----_.--_
.. ---~
--~--
Moody's Investors Service
CE Adjusted Performance
450.0%
-~
___- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - j
400.0% - - - - - - ' \ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1
350.0%
-------'.---------------------------------------j
300.0% - - - - - - - \ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1
250.0%
-----------'.III;:-------------11111"'-:---------------------------j
200.0%
------I----"'~-
150.0% - - - - + - - -
100.0%
-----/-----------I-f----
-I--_____-/~~=~===;~~==*====*::::::::::==:::!c=------~
50.0% _ _ _
Top 10% Top 20% Top 30% Top 40% Top 50% Top 60% Top 70% Top 80% Top 90%
_._J_
--_.-
--+--WF 195
Thorn 52
RFC 76
--Citi 59
FH 61
WaMu 53
--_
.. -------
--~--
Moody's Investors Service
BOA 132 --*-CW 220
___ PHH 1
Chase 29
All
Rankings
Issuer
Graph-based Approach
CE Adjusted Approach
1
Wells
Wells
2
Thorn
Thorn
3
Citi
BOA
4
FHA
Citi
5
RFC
Cendant/PHH
6
WAMU
Chase
7
BOA
FHA
8
Cendant/PHH
RFC
9
Chase
WAMU
10
CW
CW
OVERALL RECOMMENDATIONS
_._J_
--~
--_.--_
.. --~--------
M3
Issuer
95%
Wells - Thornburg - Citi
97.5%
BOA - FHA - (WAM U - RFC - Cendant)
100%
CW - Chase
Moody's Investors Service
All-In benefit to M3 output
Issuer
Issuer
_._J_
---
Originator Benefit
Servicing Benefit
Uncapped All-In benefit
Wells
5.0%
2.5%
7.5%
Thornbur
5.0%
0.0%
5.0%
Citi
5.0%
2.5%
7.5%
BOA
2.5%
2.5%
5.0%
FHA
2.5%
-0.85%
1.7%
RFC
2.5%
2.5%
5.0%
WAMU
2.5%
0.0%
2.5%
Cendant
2.5%
0.0%
2.5%
CW
0.0%
2.5%
2.5%
Chase
0.0%
2.5%
2.5%
~
--_.--_
.. --~--------
Moody's Investors Service
AN N EX - Pool Factors
_._J_
----_.--_
.. ---~
--~--
Moody's Investors Service
Pool Factor ARM 01
100.00%
90.00%
80.00%
-JUMBO
-BOAMS
70.00%
60.00%
CW
50.00%
-RFC
40.00%
-THORNBURG
........... WAMU
30.00%
20.00%
10.00%
0.00%
0
10
20
30
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
40
50
60
Pool Factor ARM 02
100.00%
90.00%
-JUMBO
-BOAMS
80.00%
70.00%
CW
60.00%
-FHA
50.00%
-RFC
40.00%
-THORNBURG
.......... WAMU
WELLS
30.00%
20.00%
10.00%
0.00%
0
5
10
15
20
25
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30
35
40
45
50
Pool Factor ARM 03
100.00%
90.00%
80.00%
70.00%
-JUMBO
BOAMS
60.00%
CW
FHA
-THORNBURG
.......... WAMU
WELLS
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
0
5
10
15
20
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
25
30
35
40
Pool Factor ARM 04
100.00 %
T"""""""""""" """""""""""""" """""""""""""" """""""""""""" """""""""""""""""""""""""""""""""""""""""""""""""""""""" """"""" """""""""""""" """""""""""""" """""""""""""" "" """"""""""""""""""""""""""""""""""""""""1
90.00%
80.00%
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -JUMBO
70.00%
BOAMS
60.00%
CW
50.00%
FHA
40.00%
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -----_--.-.-- - - - - - - - - - - - - - - -RFC
30.00%
-------------------------------------------------------------------- -THORNBURG
20.00%
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -WAMU
10.00%
0.00%
WELLS
+------r----,----,-----;----,------,----,------j
o
5
10
15
20
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
25
30
35
40
Pool Factor ARM 05
~====~==~;:~~~!!~~~::==::::~---JUMBO
......
-BOAMS
CW
-FHA
-RFC
-THORNBURG
-WAMU
WELLS
15
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
Pool Factor Arm 06
100. 00%
T~~~~~~~~~~~~~~~~'~~~~~~~~~~~~~~'~~~~~~~~~'~~~~~~~~~~~~~~~'~~~~~~~~~~~~~~'~~~~~.~~~~~'4
-JUMBO
98.00%
CW
96.00%
94.00%
-
92.00%
-
90.00%
-
-RFC
-THOURNBURG
-WAMU
88.00% +-_ _ _-,--_ _ _--,_ _ _ _.,---_ _----.J
a
2
4
Seasoning
Moody's Investors Service
6
8
WELLS
Pool Factor FRM 01
100.00%
T·····················································..................................................................................................................................................................................................................................................................................................................
1
90.00%
-JUMBO
80.00%
70.00%
BOAMS
-
CHASE
60.00%
CW
50.00%
FHA
40.00%
-
30.00%
-
-RFC
-WAMU
20.00%
WELLS
10.00%
0.00%
+-------~------~------~~~----~------~----~~
o
10
20
30
40
50
60
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
Pool Factor FRM 02
120.00%
100.00%
-JUMBO
BOAMS
80.00%
CHASE
CW
60.00%
FHA
-RFC
40.00%
.......... WAMU
WELLS
20.00%
0.00%
0
5
10
15
20
25
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
30
35
40
45
50
Pool Factor FRM 03
100.00%
90.00%
80.00%
-JUMBO
70.00%
BOAMS
60.00%
CHASE
50.00%
CW
40.00%
FHA
30.00%
-RFC
WELLS
20.00%
10.00%
0.00%
0
5
10
15
20
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
25
30
35
40
Pool Factor FRM 04
100.00%
90.00%
-JUMBO
80.00%
-BOAMS
70.00%
CHASE
60.00%
CW
50.00%
-FHA
40.00%
-RFC
30.00%
-WAMU
20.00%
WELLS
10.00%
0.00%
0
5
15
10
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
20
25
Pool Factor FRM 05
___________
100.00%
90.00%
. . .• . . .
~~~~~~CC2~~======~ ~_·······-········-·······-·······~·······=·~5··~=:=;·······;········:'~f:'~:":"":"f~i'~"J
-------..,
80.00%
-JUMBO
70.00%
BOAMS
60.00%
CHASE
50.00%
CW
40.00%
FHA
30.00%
-RFC
WELLS
20.00%
10.00%
0.00%
0
2
4
6
8
Seasoning
_._J_
----_.--_
.. --~-------~
Moody's Investors Service
10
12
14
Pool Factor FRM 06
102.000/0
101.000/0
-JUMBO
--BOAMS
CHASE
CW
100.000/0
99.000/0
98.000/0
97.000/0
-RFC
96.000/0
WELLS
95.000/0
94.000/0
0
2
4
Seasoning
Moody's Investors Service
6
8
Originator Factor Follow Up Committee
Date: November 28,2006
Committee Members:
Background:
At our last meeting, we went over the origination practices data collected by our analysts,
as well as the performance data that we compiled to determine each originators'
performance relative to our initial committee-determined expectations.
After reviewing this data, we determined to come up with an originator factor based upon
taking a straight average of the scores (1-3) for each originator's performance, financial
strength and reputation.
Final Committee'd Levels:
Originator
Chase
WMC
First Franklin
Option One
WELLS
Accredited
Countywide
RFC (RASC)
RFC (RAMP)
New Century
Long Beach
Popular
Ameriquest
Saxon
Novastar
Centex
FieldStone
EquiFirst
Encore
Aegis
Fremont
People's
Choice
M3
Adjustment
-5.00%
-5.00%
-5.00%
-5.00%
-5.00%
-2.50%
-2.50%
-2.50%
-2.50%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
+5.00%
+5.00%
+10.00%
+10.00%
UIpld ate d R
d·
ecommen
atlOn:
Originator
Chase
WMC
First Franklin
Option One
WELLS
Accredited
Countywide
RFC (RASC)
RFC (RAMP)
New Century
Long Beach
Popular
Ameriquest
Saxon
Novastar
Centex
FieldStone
EquiFirst
Encore
Ownit
Aegis
Fremont
People's
Choice
Performance
Score
1
1
1
1
1
1
2
2
2
1
2
2
2
2
2
2
2
3
2
3
3
3
3
Reputation
Score
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
Financial
Stability Score
1
1
1
1
1
2
1
1
1
2
1
2
2
2
2
2
3
2
2
3
3
Recommendation:
Originator
WMC
First Franklin
Accredited
Countywide
RFC (RASC)
Fremont
FieldStone
Encore
New Century
Popular
Long Beach
Option One
WELLS
Overall
Score
1.00
1.00
1.33
1.33
1.33
1.67
1.67
1.67
1.67
1.67
1.67
1.67
1.67
Originator
Factor
-5.00%
-5.00%
-5.00%
-5.00%
-5.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
3
3
3
3
Overall
Score
1.00
1.00
1.00
1.00
1.00
1.33
1.33
1.33
1.33
1.67
1.67
2.00
2.00
2.00
2.00
2.00
2.33
2.33
2.67
2.67
2.67
3.00
M3
Adjustment
-5.00%
-5.00%
-5.00%
-5.00%
-5.00%
-2.50%
-2.50%
-2.50%
-2.50%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
+2.50%
+2.50%
+2.50%
+5.00%
3
3.00
+5.00%
3
2
RFC (RAMP)
Ameriquest
Saxson
Aames
Novastar
EquiFirst
Centex
Ownit
Aegis
People's
Choice
1.67
2.00
2.00
2.00
2.00
2.00
2.33
2.67
2.67
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
+5.00%
+5.00%
3.00
+5.00%
Reputation Score:
At the end of the last meeting, we agreed upon the following reputation scores:
Fremont
FieldStone
Encore
New Century
WMC
First Franklin
Accredited
Countywide
Popular
Ameriquest
RFC (RASC)
Saxson
Aames
Novastar
Long Beach
Ownit
Centex
Option One
WELLS
Aegis
EquiFirst
People's Choice
RFC (RAMP)
2
2
3
2
2
2
2
2
2
2
2
2
2
2
3
Financial Stability Score:
For financial stability, we used the servicer ratings team's Servicer Stability scores as a
proxy, where available. When this was not available, a best guess was used, and is
highlighted below:
Fremont
FieldStone
Encore
New Century
WMC
First Franklin
Accredited
Countywide
Popular
Ameriquest
RFC (RASC)
Saxson
Aames
Novastar
Long Beach
Own it
Centex
Option One
WELLS
Aegis
EquiFirst
People's Choice
RFC (RAMP)
2
2
3
2
1
2
2
2
2
2
2
2
2
1
2
2
3
Performance Score:
We rank ordered each originator, in ascending order, by the slope of a best fit line
through respective performance curves. They were then split into thirds, and scores were
assigned based on which third they fell out in.
Tier 1 Performance
450.00% , ......................................................................................................................................................................................................................................................................................................................................................................................................,
400.00% +-__- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1
350.00% + - - - : l ? - " " ' " ' c - - - - - - - - - - - - - - - - - - - - - - - - - - - - i
300.00% + - - - -____- - - " c - - - - - - - - - - - - - - - - - - - - - - - - - - 1
250.00%
200.00% +-__~----___IIk__--------~-
---------------------j
100.00% + - - - - - - - - - - - - - - - - - - - - - =
50.00% + - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1
0.00%
+---~--_,_--_,_--_,._--~--~--__r--__r--__r----1
2
--+- Frerront -0.305
WMC-0.089
3
4
FieldStone -0.284
First Franklin -0.088
5
6
7
Encore -0.278
Accredited -0.056
8
9
10
New Century -0.092
Tier 2 Performance
160.00%
T·····················································.................................................................................................................................................................................................................................................................................................................... ...........
140.00%
+-----------------------------------------------------------------~
120.00% t---~~~~~==~--------
1
___~~----~~~------------------------~
100.00% +----------'\--------±-----80.00%
60.00% +------".c40.00%
+---~---
20.00%
+------n~--------------------------------------------------------~
2
3
-+- Countyw ide -0.026
Saxson 0.067
-
4
5
Popular -0.002
Aames 0.07
6
7
Ameriquest 0.027
Novas!ar 0.084
8
9
10
RFC (RASC) 0.044
- - Long Beach 0.089
Tier 3 Performance
200.00%
+-----------------------------~----------------------------------~
150.00%
+---------------+_~c_--_,~------~----~~----------------------~
100.00% +--------------+--------------/-------,,"-----==-
50.00%
+----------t~+_-+~.;.'----~~,--
2
3
-+- Ow nit 0.09
--*- Aegis 0.137
-
4
5
Centex 0.093
EquiFirst 0.139
Performance scores, by originator, are as follows:
6
7
8
9
10
Option One 0.113
WELLS 0.121
People's Choice 0.139 - - RFC (RAMP) 0.146
Fremont
FieldStone
Encore
New Century
WMC
First Franklin
Accredited
Countywide
Popular
Ameriquest
RFC (RASC)
Saxson
Aames
Novastar
Long Beach
Ownit
Centex
Option One
WELLS
Aegis
EquiFirst
People's Choice
RFC (RAMP)
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
Note that certain issuers, such as Encore, are ranked in the top tier, despite a very small
number of observations. This is something that should probably be adjusted.
Aggregated Scores:
hts
Performance
Overall
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Assuming Bear Purchase goes through
Based upon ownership by highly rated bank.
NOTES:
=Financial Stability guessed at
- All scores are based on a scale of 3
- Where available, servicing team's servicer stability was used as a proxy for financial stability
- Due to originator sales/consolidation, Aames, Encore and First Franklin FS were determined
based upon potential buyer.
I recommend putting the cutoff for "above average" originators at <1.67, "average" at
>=1.67 and <=2.33, and "below average" at >2.33.
Subprime Originator Factor Second Committee
Date:
Committee Members:
Background:
In the primary subprime originator factor committee, dated July 28, 2006, we recommended the
use of up to seven different factors to be applied to potentially seven different classifications of
originator quality, while at the same time recommending only designating the use of three or four
factors for the current pool of originators. To come up with this recommendation, we collected
and analyzed up to 26 originations based qualitative data points for each of the originators in our
base pool. The basis for our recommendation lied primarily in one or two of the data fields, as
the vast majority or the remainder of the fields did not display any meaningful variances.
In an attempt to capture more meaningful information, we produced a more robust and
comprehensive list of questions for each originator, and also extracted performance data relating
to a large portion of subprime securitizations over the last 5 years. We compared the original
committee'd loss coverage levels for each securitization with that securitizations proj ected
cumulative loss levels to get a feel for which originators' collateral is outperforming our
expectations, and which are underperforming our expectations.
Recommendation:
After reviewing additional qualitative originator data requests in addition to the performance data,
we are not changing our original recommendations as far as which originators are average, above
average and below average. Our recommendation for the factors to be applied has changed
slightly. We recommend using only three factors: -5% for above average, 0% for average and
+5% for below average. Note that a 5% change results in roughly 1 notch change in loss
coverage at subprime levels.
Originator
Overall
Factor
Countywide
Above Average
-5.00%
First Franklin
Above Average
-5.00%
Option One
Above Average
-5.00%
WMC
Above average
-5.00%
New Century
Average
0.00%
Long Beach
Average
0.00%
Wells
Average
0.00%
Ameriquest - wholesale (Argent)
Average
0.00%
Ameriquest - retail
Average
0.00%
RFC
Average
0.00%
Fremont
Average
0.00%
Accredited
Average
0.00%
Centex
Average
0.00%
Novastar
Average
0.00%
Popular
Average
0.00%
Saxon
Average
0.00%
Decision One
Average
0.00%
FieldStone
Average
0.00%
Aegis
Below Average
5.00%
Aames
Below Average
5.00%
Ownit
Below average
5.00%
EquiFirst
Below Average
5.00%
People's Choice
Below average
5.00%
Encore
Below Average
5.00%
Analysis:
Origination Practices:
As was the case in the initial data request, the latest data request did not provide meaningful
results. Appraisal processes and QC practices did not differ in any material way that we could
identify.
Below is a chart with the data fields we requested, "Average" answers, and the few outlier data
points:
Originator
Average
Deviating Originators
Appraisal practices
AppraisAL Review Work Flow'
AppraisER Review Process'
List of Appraisers not to accept
appraisals from
pre funding app review (%)
100%
Centex (90%)
post funding app review (%)
reviews on hiqh value loans
Yes
other type of loans reviewed
Various Risk Factors
Type of review (automated/desk review?)
Automated and Desk
What is the tolerance?
10% to 15%
If outside tolerance,what is the additional review?
2nd apprsails obtained
if bal is over (xxx)?
Using outside vendors? If so, which ones?
(e.g. Corelogic)
500 to 850
People's Choice
(Highest requirement of
$850)
When are interior photos required?
Sometimes (older homes, when
improvements have been made and
are the base for appraisal values
Ameriquest (Requires
Photos)
Size of in house review staff, and% that are licensed
appraisers
O(Saxon) to 43(WMC) Most have 20 or
fewer
Saxon
% of appraisals with values reduced through appraisal
review process (% of all loans)
Can values be increased through appraisal review
process?
QC
20% ish - wide variance
No
Under 30% (Post Funding)
Sample Size (Both Pre and Post funding)
Random Sample? And if not random, what are the
criteria for review?
Usually a combination of the two sum
to the 30% number above
How are results incorporated into
underwriting/originating practices?'
Internal Audit Practices'
% of Early Pay Defaults (EPD"')
WIDE variance (differing definitions is
one reason)
Repurchase Rate (% of loans repurchased, not including
EPD*")
Non-Observable Exceptions (Things that would not be
seen on a data tape, such as FICO or LTV)
No Responses
Business Strategy*
Financials **
VTDlncome
2004 and 2005 Annual Income
Net Worth
Securitizations accounted for gain on sale (V or N)
% of originations sold on a whole loan basis
Other Notes
Origination Volume for 2003,2004, 2005 and first half of
2006
How is DTI Computed(what is included in debt and
income)? Does it differ between programs?
Back End DTI - Includes non-mortgage
debt.
How is FICO determined (lower of 2/middle of 3)?
lower of 2/middle of 3
What are reserves policies? How many months are
required? Does it differ between different programs?
Is foreclosure allowed? If so, are there requirements for
time from FC?
IS BK allowed? If so, are there requirements for time
from BK?
Decision One offers a
rate reduction for
providing reserves for
loans originated under
programs which do not
require reserves.
Performance:
In addition to collecting qualitative information on originations practices, we pulled performance
data for securitizations from the same originators over a five year period. Quantitative data
regarding FICO, and other objective credit quality determinants was not available for these
securitizations, so we compared the projected cumulative loss rates of each securitization with the
originally committee'd expected losses in an effort to determine how each originators pools
performed relative to our expectations.
Due to the strength in the overall housing market over the past few years, the majority of the
pools outperformed our expectations. In order to come up with a means to compare originators,
we rank ordered, in ascending order, each securitization by a factor that was defined as the
projected cumulative loss divided by the committee'd expected loss. The projected cumulative
loss was defined as the cumulative losses to date added to the future expected losses based on the
following roll rates:
Current
11.25%
30 day Roll Rate
17.50%
60 day Roll Rate
30.00%
90 day Roll Rate
50.00%
FC Roll Rate
65.00%
REO Roll Rate
98.00%
Severity Assumption
40.00%
With this definition, the pool with the lowest factor was outperforming the committee' d expected
loss by the largest margin. Originators with a larger percentage of their securitizations with low
factors, and thus low rankings would be outperforming their expectations on a more consistent
basis. The graph below illustrates the performance trends for the pool of originators.
Percentile Proportion I Overall Proportion
-+-Countywide 84
First Franklin 41
400.00%
Option One 48
New Century 97
350.00%
+---~.,:--------------------------l
_ _ Arrenquest 86
_ _ RFC (RASC) 91
~RFC(RAMP)
300.00%
4
- - Long Beach 41
Frermnt 51
250.00%
Accredited 23
FieldStone 10
200.00% +---ilitc-----
----------',~- - - - - - - - - - - - - - - - - - - - j
Saxson 28
Aegis 11
Ownit 2
150.00% - j - - - -
People's Ohoice 5
Encore 4
EquiFirst 10
100.00% + - - - -
........ Centex 27
Novastar 27
50.00%
+----
Popular 37
Aarres 16
~WELLS
0.00%
% in top
90
% in top % in top
80
70
% in top
60
% in top % in top
50
40
% in top
30
% in top
20
% in top
10
% in top
0
14
......"'...... WMC 14
Graph Description:
The pool of securitizations for which we had performance data was further bucketed into
percentile buckets, with the top 90% representing securitizations with the lowest 10% of the
rankings.
Each data point on this graph is defined as the particular originators proportional share for the
given percentile bucket divided by that originators proportional share of the entire pool. So, if the
data point is greater than 100%, then that originator has a larger share of that particular percentile
bucket than it does of the entire pool. By this definition, all originators will end up with a data
point of 100% when all securitizations are accounted for - at the 0 percentile bucket.
In general, a downward sloping line represents an originator whose performance exceeded our
expectations more consistently. An upward sloping line, on the other hand, represents an
originator whose performance exceeded our expectations less consistently. Note that the legend
includes the number of observations for each originator as well.
Performance Data Conclusions:
While this data does provide some good insight into how certain originators may have been
outperforming/underperforming our expectations, it is not sufficient to serve as a base for
originator factor recommendations. Many of the originators are represented by very few data
points, and we also do not have reliable information regarding how the original expected loss
coverage levels were determined. For example, while the graph clearly illustrates that Fremont
has been outperforming expectations, we do not know how many "notches" above the average
pool were being attributed to Fremont loss coverage levels in the 200 I through 2003 vintage
pools.
We recommend using this data as additional support to the factors recommended, as opposed to
the basis for determining factors.
In the spirit of promoting transparency and clarity, Moody's Standing Committee on Rating
Systems & Practices offers this updated reference guide which defines Moody's various symbols
and rating scales.
Since John Moody devised the first bond ratings almost a century ago, Moody's rating systems
have evolved in response to the increasing depth and breadth of the global capital markets. Much of
the innovation in Moody's rating system is a response to market needs for clarity around the
components of credit risk or to demands for finer distinctions in rating classifications.
From the original 1909 bond rating definitions, Moody's ratings have expanded to the extent
that today we maintain 32 systems, with the number growing every year.1
Rating Systems Outstanding by Decade
35
~~~~~~~~~~~~~~~~~~~~~~~
30
~~~~~~~~~~~~~~~~~~~~~~~-
25
20
15
10
5
~~~~~~~~~~~~~~~~~-I--~~~~~~~~~~~~~~~~-
~~~~~~~~~~~~~~~~~-I--~~~~~~~~~~~-
-I--~~~~~
o -I----~-~1900s
1970s
1980s
1990s
2000s
In its simplest terms, Moody's assigns and publishes two kinds of ratings:
1) Credit ratings and other credit signals
Moody's credit ratings are opinions of the credit quality of individual obligations or of
an issuer's general creditworthiness (without respect to individual debt obligations or
other specific securities). Examples include our long-term obligation ratings,
syndicated loan ratings, bank deposit ratings, national scale ratings and insurance
financial strength ratings. Moody's also provides auxiliary signals about credit risk
through the use of Rating Outlooks and Watchlist designations (review for rating
change).
1. By counting National Scale Ratings for each country as a separate system, the total exceeds 40.
Moody's Rating Symbols & Definitions
2) Non-credit ratings
Moody's has implemented special rating systems to address other aspects of risk,
including market risk ratings, investment manager quality ratings, servicer quality
ratings, and Lloyd's syndicate volatility ratings.
Unless otherwise indicated within the definition, all rating systems are monitored, that is,
surveillance is ongoing. Ratings may also be withdrawn for various reasons. Please refer to
Moody's Guidelines for the Withdrawal of Ratings, available on moodys.com, for a list of such
circumstances.
The Standing Committee on Rating Systems & Practices, one of several at Moody's that
focuses on credit policy issues, is comprised of structured finance, corporate finance, public
finance, financial institutions and sovereign credit analysts. The names, direct telephone numbers
and e-mail addresses of the members of the Standing Committee are listed below. I invite you to
contact us with your comments.
Jerome S. Fans
Chair, Standing Committee on Rating Systems & Practices
Moody's Rating Symbols & Definitions
Jerome S. Fons - Chair ....................................................................................................+ 1-212-553-4131
Managing Director, Credit Policy
jerome.fons@moodys.com
Daniel Curry ......................................................................................................................+ 1-212-553-4815
Group Managing Director, Corporate Finance Group
daniel.curry@moodys.com
Jack Dorer ........................................................................................................................+ 1-212-553-1332
Toom Managing Director, Financial Institutions Group
jack.dorer@moodys.com
Jay Eisbruck ......................................................................................................................+ 1-212-553-4377
Toom Managing Director, Structured Finance Group
jay.eisbruck@moodys.com
Matthew Jones ..................................................................................................................+ 1-415-274-1735
Senior Vice President, U.S. Public Finance
matthew.jones@moodys.com
Marie Menendez ................................................................................................................+ 1-212-553-4126
Senior Vice President, Corporate Finance Group
marie.menendez@moodys.com
Mary O'Donnell ..................................................................................................................+ 1-212-553-7890
Analyst, Sovereign Risk Unit
mary.odonnell@moodys.com
Benedicte Pfister ..............................................................................................................+4420-7772-8629
Toom Managing Director, Structured Finance Group
benedicte.pfister@moodys.com
Brenda Piskin .................................................................................................................... + 1-212-553-4947
Senior Business Analyst, Moody's Systems Development
brenda.piskin@moodys.com
Moody's Rating Symbols & Definitions
Preface
1
Moody's Standing Committee on Rating Systems & Practices
3
Introduction
6
General Credit Ratings
8
Long- Term Obligation Ratings ......................................................................................... 8
Medium- Term Note Ratings ............................................................................................9
Short-Term Ratings ....................................................................................................... 10
Issuer Ratings ............................................................................................................... 11
Sector Specific
12
Structured Finance ........................................................................................................ 12
US Municipal Ratings .................................................................................................... 14
Corporate Family Ratings .............................................................................................. 18
Probability of Default Ratings ........................................................................................ 18
Loss Given Default Assessments .................................................................................. 19
Covenant Quality Assessments ..................................................................................... 20
Speculative Grade Liquidity Ratings .............................................................................. 21
Bank Deposit Ratings .................................................................................................... 22
US Bank Other Senior Obligation Ratings ..................................................................... 23
Bank Financial Strength Ratings ....................................................................................24
Insurance Financial Strength Ratings ............................................................................. 26
Money Market and Bond Fund Ratings ......................................................................... 29
National Scale Ratings ..................................................................................................30
Country Ceilings
34
Country Ceiling for Bonds and Other Foreign Currency Obligations .............................. 34
Country Ceiling for Foreign Currency Bank Deposits ..................................................... 34
Country Ceiling for Bonds and Other Local Currency Obligations ................................. 34
Local Currency Deposit Ceiling ..................................................................................... 35
Moody's Rating Symbols & Definitions
Other Non-Credit Ratings
36
Equity Fund Ratings ......................................................................................................36
Market Risk Ratings ......................................................................................................37
Investment Manager Quality Ratings ............................................................................. 38
Servicer Quality Ratings ................................................................................................39
Hedge Fund Operations Quality Ratings ....................................................................... 40
Real Estate Portfolio Cash Flow Volatility Ratings .......................................................... 41
Common Representative Quality Ratings ...................................................................... 42
Trustee Quality Ratings ..................................................................................................43
Lloyd's Syndicate Performance and Volatility Ratings .................................................... 43
Hybrid Security Baskets ................................................................................................46
Other Rating Symbols
47
Expected Ratings - e .....................................................................................................47
Provisional Ratings - (P) ................................................................................................47
Refundeds - # ............................................................................................................... 47
Withdrawn - WR ...........................................................................................................48
Not Rated - NR ............................................................................................................. 48
Not Available - NAV....................................................................................................... 48
Terminated Without Rating _ TWR ................................................................................. 48
Other Rating Services
49
Credit Estimates ............................................................................................................ 49
Internal Ratings .............................................................................................................49
Under/ying Ratings ........................................................................................................49
Policies and Procedures
50
Rating Outlooks ............................................................................................................50
Watchlist .. .....................................................................................................................50
Confirmation of a Rating ...............................................................................................50
Affirmation of a Rating ...................................................................................................50
Moody's Rating Symbols & Definitions
The modern bond rating industry traces its roots to the 1909 publication of Moody's Analyses of
Railroad Investments. The "Key to the Bond Ratings," found at the beginning of each annual
volume, provided definitions for the various rating categories. It was clear that John Moody's initial
emphasis was on the investment quality or performance of securities. For example, the earliest
definition for the Aaa rating category states:
Aaa
The bonds and stocks which are given this rating are regarded as of the highest class, both
as regards security and general convertibility. Practically all such issues are dependent for
their prices on the current rates for money, rather than the fluctuations in earning power.
In other words, their position is such that their value is not affected, or likely to be affected (except in the cases of stocks not limited as to dividends), by any normal changes in the
earning capacity of the railroad itself, either for better or worse.
Any change in value for such highly rated securities was thus anticipated to result from
changes in the level of interest rates, rather than from changes in the issuer's credit quality or
circumstances. Moody was in effect addressing the stability of the security's credit spread.
Separate Meaning for Certain Sectors
Moody's maintains two separate bond rating systems, or scales. One mapping - Moody's Global
Scale - applies to ratings assigned to nonfinancial and financial institutions, sovereigns and
subsovereign issuers outside the United States, and structured finance obligations. 2 The Global
Scale is a mapping between rating categories and relative expected loss rates across multiple
horizons. Expected loss comprises an assessment of probability of default as well as expectation
of loss in the event of default. It is Moody's intention that the expected loss rate associated with a
given rating symbol and time horizon be the same across obligations and issuers rated on the
Global Scale. Moody's rating methodologies, rating practices and performance monitoring
systems are each designed to ensure a consistency of meaning.
2. Moody's structured finance ratings are engineered to replicate the expected loss content of Moody's Global Scale. The
trade-off between probability of default and severity of loss given default may vary within the structured finance sector
depending on asset type.
Moody's Rating Symbols & Definitions
A separate rating system - Moody's US Municipal Scale - encompasses ratings assigned to
state and local governments, non-profit organizations and related entities that issue debt in the
U.S. tax-exempt bond market. Historical default and loss rates for obligations rated on the US
Municipal Scale are significantly lower than for similarly rated corporate obligations. Municipal
investors are generally risk averse and in the case of individuals, often dependent on debt service
payments for income. As a result, the US Municipal Scale evolved to meet investor needs for
identifying the most secure municipal investments among obligations with similar credit profiles. It
is important that users of Moody's ratings understand these differences in default and loss rates
when making rating comparisons between the Municipal and Global Scales.
Moreover, to meet the needs of investors in certain local jurisdictions, Moody's will assign
National Scale Ratings, which are opinions of the relative creditworthiness of issuers and issues
within a particular country and are not suitable for global comparisons.
Scope of Rating Definitions
The definitions in this handbook are not intended to provide a detailed view of how ratings are
determined. Instead, Moody's publishes rating methodologies for each industry sector and these
are designed to illustrate the factors underpinning Moody's rating opinions. We encourage readers
to consult the relevant rating methodology in order to better understand how individual ratings are
derived.
Moody's Rating Symbols & Definitions
Long-Term Corporate Obligation Ratings
Moody's long-term obligation ratings are opinions of the relative credit risk of fixed-income
obligations with an original maturity of one year or more. They address the possibility that a financial
obligation will not be honored as promised. Such ratings use Moody's Global Scale and reflect both
the likelihood of default and any financial loss suffered in the event of default.
Aaa
Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa
Obligations rated Baa are subject to moderate credit risk. They are considered mediumgrade and as such may possess certain speculative characteristics.
Ba
Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B
Obligations rated B are considered speculative and are subject to high credit risk.
Caa
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca
Obligations rated Ca are highly speculative and are likely in, or very near, default, with
some prospect of recovery of principal and interest.
C
Obligations rated C are the lowest rated class of bonds and are typically in default, with
little prospect for recovery of principal or interest.
Note: Moody's appends numerical modifiers I, 2, and 3 to each generic rating classification from Aa through
Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Moody's Rating Symbols & Definitions
Medium-Term Note Ratings
Moody's assigns long-term ratings to individual debt securities issued from medium-term note
(MTN) programs, in addition to indicating ratings to MTN programs themselves. These long-term
ratings are expressed on Moody's general long-term scale. Notes issued under MTN programs
with such indicated ratings are rated at issuance at the rating applicable to all pari passu notes
issued under the same program, at the program's relevant indicated rating, provided such notes
do not exhibit any of the characteristics listed below:
Notes containing features that link interest or principal to the credit performance of any
third party or parties (i.e., credit-linked notes);
Notes allowing for negative coupons, or negative principal;
Notes containing any provision that could obligate the investor to make any
additional payments;
Notes containing provisions that subordinate the claim.
For notes with any of these characteristics, the rating of the individual note may differ from the
indicated rating of the program.
For credit -linked securities, Moody's policy is to "look through" to the credit risk of the underlying
obligor. Moody's policy with respect to non-credit linked obligations is to rate the issuer's ability to
meet the contract as stated, regardless of potential losses to investors as a result of non-credit
developments. In other words, as long as the obligation has debt standing in the event of bankruptcy,
we will assign the appropriate debt class level rating to the instrument.
Market participants must determine whether any particular note is rated, and if so, at what
rating level. Moody's encourages market participants to contact Moody's Ratings Desks or visit
www.moodys.com directly if they have questions regarding ratings for specific notes issued under
a medium-term note program. Unrated notes issued under an MTN program may be assigned an
NR (not rated) symbol.
Moody's Rating Symbols & Definitions
Short -Term Ratings
Moody's short-term ratings are opinions of the ability of issuers to honor short-term financial
obligations. Ratings may be assigned to issuers, short-term programs or to individual short-term
debt instruments. Such obligations generally have an original maturity not exceeding thirteen
months, unless explicitly noted.
Moody's employs the following designations to indicate the relative repayment ability of rated
issuers:
P-l
Issuers (or supporting institutions) rated Prime-l have a superior abi lity to repay short-term
debt obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term
debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay shortterm obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
Note: Canadian issuers rated P-I or P-2 have their short-term ratings enhanced by the senior-most long-term rating of the issuer, its guarantor or support-provider.
Short-Term vs. Long-Term Ratings
I
Long-Term
Aaa
~
Aal
Aa2
Aa3
E
Al
m
'0
Cl
g
~
1"
-,
Prime-1
}
A2
A3
Baa1
Baa2
Baa3
m
Bal
Ba2
Ba3
Short-Tenn
Prime-2
Prime-3
"""-
'0
~
C(
m
"~
1<1
~0.
Ul
Bl
B2
B3
Not Prime
Caa1
Caa2
Caa3
Ca
C
-
Moody's Rating Symbols & Definitions
Issuer Ratings
Issuer Ratings are opinions of the ability of entities to honor senior unsecured financial obligations
and contracts. Moody's expresses Issuer Ratings on its general long-term and short-term scales.
Moody's Rating Symbols & Definitions
Structured Finance
Structured Finance Long-Term Ratings
Moody's ratings on long-term structured finance obligations primarily address the expected credit
loss an investor might incur on or before the legal final maturity of such obligations vis-a.-vis a
defined promise. As such, these ratings incorporate Moody's assessment of the default probability
and loss severity of the obligations. They are calibrated to Moody's Global Scale. Such obligations
generally have an original maturity of one year or more, unless explicitly noted. Moody's credit
ratings address only the credit risks associated with the obligations; other non-credit risks have
not been addressed, but may have a significant effect on the yield to investors.
Aaa
Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa
Obligatiuns rated Baa are subject tu muderate credit risk. They are considered mediumgrade and as such may possess certain speculative characteristics.
Ba
Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B
Obligations rated B are considered speculative and are subject to high credit risk.
Caa
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca
Obligations rated Ca are highly speculative and are likely in, or very near, default, with
some prospect of recovery of principal and interest.
C
Obligations rated C are the lowest rated class of bonds and are typically in default, with
little prospect for recovery of principal or interest.
Note: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through
Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Moody's Rating Symbols & Definitions
Structured Finance Issuer Ratings
Structured Finance Issuer Ratings are opinions of an entity's general financial capacity to ultimately
honor its contracts and financial obligations. The opinions are founded upon an expected lossbased assessment of the credit quality of the entity's assets and also incorporate Moody's opinion
of the quality of its management and its investment process and strategy. Moody's ratings
symbols for Structured Finance Issuer Ratings are identical to those used to indicate the credit
quality of long-term obligations. The credit quality of entities that leverage their structured finance
asset portfolios is more accurately expressed via a Counterparty Rating for derivatives product
companies.
Credit Default Swaps Ratings
Moody's Credit Default Swaps Ratings - expressed on the long-term scale - measure the risk
posed to a credit protection provider on an expected loss basis arising from the possibility that the
credit protection provider will be required to make payments in respect of credit events under the
terms of the transaction. The ratings also address the potential for any unpaid premiums due to the
credit protection provider, up until an early termination date, if any. The ratings do not address
potential losses resulting from an early termination of the transaction, nor any market risk associated
with the transaction.
Counterparty Ratings: Derivatives Product Companies
Issuer ratings assigned to derivative product companies and clearinghouses are opinions of the
financial capacity of an obligor to honor its senior obligations under financial contracts, given
appropriate documentation and authorizations. Moody's employs the general long-term scale for
Counterparty Ratings.
Counterparty Instrument Ratings: Special Purpose Vehicles
Counterparty Instrument Ratings measure the risk posed to a counterparty on an expected loss
basis arising from a special purpose vehicle's (SPV's) inability to honor its obligations under the
referenced financial contract. The ratings do not address potential losses in relation to any market
risk associated with the transaction. Moody's employs the general long-term scale for
Counterparty Instrument Ratings.
Moody's Rating Symbols & Definitions
US Municipal Ratings
Moody's US Municipal ratings are opinions of the investment quality of issuers and issues in the US
municipal market. As such, these ratings incorporate Moody's assessment of the default probability
and loss severity of these issuers and issues. The default and loss content for Moody's municipal longterm rating scale differs from Moody's general long-term rating scale. Historical default and loss rates
for obligations rated on the US Municipal Scale are significantly lower than for similarly rated corporate
obligations. It is important that users of Moody's ratings understand these differences when making
rating comparisons between the Municipal and Global Scales.
Moody's Rating Symbols & Definitions
US Municipal Long-Term Debt Ratings
Municipal Ratings are based upon the analysis of five primary factors related to municipal finance:
market position, financial position, debt levels, govemance, and covenants. Each of the factors is
evaluated individually and for its effect on the other factors in the context of the municipality's ability
to repay its debt.
Aaa
Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative to other US
municipal or tax-exempt issuers or issues.
Aa
Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other US
municipal or tax-exempt issuers or issues.
A
Issuers or issues rated A present above-average creditworthiness relative to other US
municipal or tax-exempt issuers or issues.
Baa
Issuers or issues rated Baa represent average creditworthiness relative to other US municipal or tax- exempt issuers or issues.
Ba
Issuers or issues rated Ba demonstrate below-average creditworthiness relative to other US
municipal or tax-exempt issuers or issues.
B
Issuers or issues rated B demonstrate weak creditworthiness relative to other US municipal
or tax- exempt issuers or issues.
Caa
Issuers or issues rated Caa demonstrate very weak creditworthiness relative to other US
municipal or tax-exempt issuers or issues.
Ca
Issuers or issues rated Ca demonstrate extremely weak creditworthiness relative to other US
municipal or tax-exempt issuers or issues.
C
Issuers or issues rated C demonstrate the weakest creditworthiness relative to other US
municipal or tax-exempt issuers or issues.
Note: Moody's appends numerical modifiers I, 2, and 3 to each generic rating category from Aa through Caa.
The modifier 1 indicates that the issuer or obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Moody's Rating Symbols & Definitions
US Municipal Short-Term Debt and
Demand Obligation Ratings
Short-Term Obligation Ratings
There are three rating categories for short-term municipal obligations that are considered
investment grade. These ratings are designated as Municipal Investment Grade (MIG) and are
divided into three levels - MIG 1 through MIG 3. In addition, those short-term obligations that are
of speculative quality are designated SG, or speculative grade. MIG ratings expire at the maturity
of the obligation.
MIG 1 This designation denotes superior credit qual ity. Excellent protection is afforded byestablished cash flows, highly reliable liquidity support, or demonstrated broad-based access
to the market for refinancing.
MIG 2
This designation denotes strong credit quality. Margins of protection are ample, although
not as large as in the preceding group.
MIG 3 This designation denotes acceptable credit quality. Liquidity and cash-flow protection
may be narrow, and market access for refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
Demand Obligation Ratings
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned; a
long or short-term debt rating and a demand obligation rating. The first element represents
Moody's evaluation of the degree of risk associated with scheduled principal and interest
payments. The second element represents Moody's evaluation of the degree of risk associated
with the ability to receive purchase price upon demand ("demand feature"), using a variation of the
MIG rating scale, the Variable Municipal Investment Grade or VMIG rating.
Moody's Rating Symbols & Definitions
When either the long- or short-term aspect of a VRDO is not rated, that piece is designated
NR, e.g., Aaa/NR or NRNMIG 1.
VMIG rating expirations are a function of each issue's specific structural or credit features.
VMIG 1 This designation denotes superior credit quality. Excellent protection is afforded by the
superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 2
This designation denotes strong credit quality. Good protection is afforded by the strong
short-term credit strength of the liquidity provider and structural and legal protections
that ensure the timely payment of purchase price upon demand.
VMIG 3 This designation denotes acceptable credit quality. Adequate protection is afforded by
the satisfactory short-term credit strength of the liquidity provider and structural and
legal protections that ensure the timely payment of purchase price upon demand.
SG
This designation denotes speculative-grade credit quality. Demand features rated in this
category may be supported by a liquidity provider that does not have an investment
grade short-term rating or may lack the structural and/or legal protections necessary to
ensure the timely payment of purchase price upon demand.
Moody's Rating Symbols & Definitions
Corporate Family Ratings
Moody's Corporate Family Ratings are generally employed for speculative grade corporate issuers.
A Corporate Family Rating is an opinion of a corporate family's ability to honor all of its financial
obligations and is assigned to a corporate family as if it had:
a single class of debt;
a single consolidated legal entity structure.
A Corporate Family Rating does not reference an obligation or class of debt and thus does
not reflect priority of claim. It normally applies to all affiliates under the management control of the
entity to which it is assigned. Moody's employs the general long-term rating scale for Corporate
Family Ratings.
Probability of Default Ratings
A probability of default rating (PDR) is a corporate family-level opinion of the relative likelihood that
any entity within a corporate family will default on one or more of its debt obligations.
For families not in default, PDRs are expressed using Moody's long-term rating scale.
For families in default on all of their debt obligations (such as might be the case in
bankruptcy), a PDR of D is assigned.
For families in default on a limited set of their debt obligations, PDRs reflect the risk of an
additional default within the family and are expressed using Moody's long-term rating
scale appended by the symbol "/lD", for example, Caa1ILD.
A D or LD rating is not assigned until a failure to pay interest or principal extends beyond any grace
period specified by the terms of the debt obligation.
A D or LD rating is not assigned for distressed exchanges until they have been completed, as
opposed to simply announced.
Moody's Rating Symbols & Definitions
Loss Given Default Assessments
Moody's Loss Given Default (LGD) assessments are opinions about expected loss given default
on fixed income obligations expressed as a percent of principal and accrued interest at the
resolution of the default. 3 LGD assessments are assigned to individual loan, bond, and preferred
stock issues. The firm-wide or enterprise expected LGD rate is a weighted average of the
expected LGD rates on all constituent liabilities (excluding preferred stock), where the weights
equal each obligation's expected share of the total liabilities at default.
The following scale is used in the assignment of LGD assessments:
Assessments
Loss range
LGDl
;::: 00,{, and < 10%
LGD2
;::: 10'';(, and < 300,{,
LGD3
;::: 30°;\, and < 50%
LGD4
;::: 50% and < 70%
LGD5
;::: 70% and < 90%
LGD6
;::: 90% and ~ 100%
3. Expected LGD is the difference between value received at default resolution (either through bankruptcy resolution,
distressed exchange, or outright cure) and principal outstanding and accrued interest due at resolution. An LGD assessment
(or rate) is the expected LGD divided by the expected amount of principal and interest due at resolution. Equivalently, the LGD
assessment is expected LGD discounted by the coupon rate back to the date the last coupon payment was made.
Moody's Rating Symbols & Definitions
Covenant Quality Assessments
Moody's covenant quality assessments measure the investor protections provided by key bond
covenants within an indenture. The assessments are unmonitored, point-in-time scores, but may
be updated as circumstances dictate. Key covenants assessed include provisions for restricted
payments, change of control, limitations on debt incurrence, negative pledges, and merger
restrictions, among others.
Moody's Rating Symbols & Definitions
Speculative Grade Liquidity Ratings
Moody's Speculative Grade Liquidity Ratings are opinions of an issuer's relative ability to generate
cash from internal resources and the availability of external sources of committed financing, in
relation to its cash obligations over the coming 12 months. Speculative Grade Liquidity Ratings will
consider the likelihood that committed sources of financing will remain available. Other forms of
liquidity support will be evaluated and consideration will be given to the likelihood that these
sources will be available during the coming 12 months. Speculative Grade Liquidity Ratings are
assigned to speculative grade issuers that are by definition Not Prime issuers.
SGL-1 Issuers rated SGl-1 possess very good liquidity. They are most likely to have the capacity
to meet their obligations over the coming 12 months through internal resources without
relying on external sources of committed financing.
SGL-2 Issuers rated SGl-2 possess good liquidity. They are likely to meet their obligations over
the coming 12 months through internal resources but may rely on external sources of
committed financing. The issuer's abilityto access committed sources of financing is highly likely based on Moody's evaluation of near-term covenant compliance.
SGL-3 Issuers rated SGL-3 possess adequate liquidity. They are expected to rely on external
sources of committed financing. Based on its evaluation of near-term covenant compliance, Moody's believes there is only a modest cushion, and the issuer may require
covenant relief in order to maintain orderly access to funding lines.
SGL-4 Issuers rated SGL-4 possess weak liquidity. They rely on external sources of financing and
the availability of that financing is, in Moody's opinion, highly uncertain.
Moody's Rating Symbols & Definitions
Bank Deposit Ratings
Moody's Bank Deposit Ratings are opinions of a bank's ability to repay punctually its foreign and/or
domestic currency deposit obligations. Foreign currency deposit ratings are subject to Moody's
country ceilings for foreign currency deposits. This may result in the assignment of a different (and
typically lower) rating for the foreign currency deposits relative to the bank's rating for domestic
currency deposits.
Moody's Bank Deposit Ratings are intended to incorporate those aspects of credit risk that
are relevant to the prospective payment performance of the rated bank with respect to its foreign
and/or domestic currency deposit obligations. Included are factors such as intrinsic financial
strength, sovereign transfer risk (for foreign currency deposits), and both implicit and explicit
external support elements.
Moody's Bank Deposit Ratings do not take into account the benefit of deposit insurance
schemes that make payments to depositors, but they do recognize the potential support from
schemes that may provide direct assistance to banks.
In addition to its Bank Deposit Ratings, Moody's also publishes Bank Financial Strength
Ratings, which exclude certain of these extemal risk and support elements (i.e., sovereign risk and
external support). Such ratings are intended to elaborate and explain Moody's Bank Deposit
Ratings, which incorporate and reflect such elements of credit risk.
Moody's employs the general long-term and short-term rating scales for bank deposits.
Moody's Rating Symbols & Definitions
US Bank Other Senior Obligation Ratings
Deposit notes and bank notes are bank obligations that are structured to be sold and traded as
securities similar to corporate bonds or medium-term notes. As bank obligations, such
instruments are exempt from SEC registration (if issued by a US bank or by the US branch of a
foreign bank). Deposit notes have the legal status of deposits and will rank pari passu in liquidation
with certificates of deposit and other domestic deposit obligations. Bank notes, although nominally
senior, are not deposit obligations. US law provides that foreign deposits and senior unsecured
obligations, including bank notes, will rank behind domestic deposit obligations of US banks in the
event of liquidation.
Moody's employs the general long-term and short-term scales for Other Senior Obligations
(OSOs). OSO ratings may be assigned to foreign deposits of US banks and International Banking
Facility deposits, as well as to other senior non-depository obligations, including bank notes, letterof-credit supported obligations, federal funds and financial contracts. A rating distinction between
domestic deposits and OSOs will be reflected in those cases where there is a material susceptibility
for impairment at a future time. Bank subordinated notes will rank behind both domestic deposits
and OS Os in a failed bank liquidation.
Moody's Rating Symbols & Definitions
Bank Financial Strength Ratings
Moody's Bank Financial Strength Ratings (BFSRs) represent Moody's opinion of a bank's intrinsic
safety and soundness and, as such, exclude certain external credit risks and credit support
elements that are addressed by Moody's Bank Deposit Ratings. In addition to commercial banks,
Moody's BFSRs may also be assigned to other types of financial institutions such as multilateral
development banks, government-sponsored financial institutions and national development
financial institutions.
Unlike Moody's Bank Deposit Ratings, Bank Financial Strength Ratings do not address the
probability of timely payment. Instead, Bank Financial Strength Ratings are a measure of the
likelihood that a bank will require assistance from third parties such as its owners, its industry
group, or official institutions.
Bank Financial Strength Ratings do not take into account the probability that the bank will
receive such external support, nor do they address risks arising from sovereign actions that may
interfere with a bank's ability to honor its domestic or foreign currency obligations.
Factors considered in the assignment of Bank Financial Strength Ratings include bankspecific elements such as financial fundamentals, franchise value, and business and asset
diversification. Although Bank Financial Strength Ratings exclude the external factors specified
above, they do take into account other risk factors in the bank's operating environment, including
the strength and prospective performance of the economy, as well as the structure and relative
fragility of the financial system, and the quality of banking regulation and supervision.
Moody's Rating Symbols & Definitions
Bank Financial Strength Rating Definitions
A
Banks rated A possess superior intrinsic financial strength. Typically, they will be institutions with highly valuable and defensible business franchises, strong financial fundamentals, and a very predictable and stable operating environment.
B
Banks rated B possess strong intrinsic financial strength. Typically, they will be institutions
with valuable and defensible business franchises, good financial fundamentals, and a predictable and stable operating environment.
C
Banks rated C possess adequate intrinsic financial strength. Typically, they will be institutions with more limited but still valuable business franchises. These banks will display either
acceptable financial fundamentals within a predictable and stable operating environment,
or good financial fundamentals within a less predictable and stable operating environment.
D
Banks rated D display modest intrinsic financial strength, potentially requiring some outside
support at times. Such institutions may be limited by one or more of the following factors: a
weak business franchise; financial fundamentals that are deficient in one or more respects; or
an unpredictable and unstable operating environment.
E
Banks rated E display very modest intrinsic financial strength, with a higher likelihood of periodic outside support or an eventual need for outside assistance. Such institutions may be limited by one or more of the following factors: a weak and limited business franchise; financial
fundamentals that are materially deficient in one or more respects; or a highly unpredictable
or unstable operating environment.
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Moody's Rating Symbols & Definitions
Insurance Financial Strength Ratings
Moody's Insurance Financial Strength Ratings are opinions of the ability of insurance companies
to repay punctually senior policyholder claims and obligations. Specific obligations are considered
unrated unless they are individually rated because the standing of a particular insurance obligation
would depend on an assessment of its relative standing under those laws governing both the
obligation and the insurance company.
Insurance Financial Strength Ratings, shown in connection with property/casualty groups,
represent the ratings of individual companies within those groups, as displayed in Moody's
insurance industry ratings list. The rating of an individual property/casualty company may be based
on the benefit of its participation in an intercompany pooling agreement. Pooling agreements may
or may not provide for continuation of in-force policyholder obligations by pool members in the
event that the property/casualty insurer is sold to a third party or otherwise removed from the
pooling agreement.
Moody's assumes in these ratings that the pooling agreement will not be modified by the
members of the pool to reduce the benefits of pool participation, and that the insurer will remain
in the pool. Moody's makes no representation or warranty that such pooling agreement will not be
modified over time, nor does Moody's opine on the probability that the rated entity may be sold or
otherwise removed from the pooling agreement.
Moody's Rating Symbols & Definitions
Long-Term Insurance Financial Strength Ratings
Moody's rating symbols for Insurance Financial Strength Ratings are identical to those used to
indicate the credit quality of long-term obligations. These rating gradations provide investors with
a system for measuring an insurance company's ability to meet its senior policyholder claims and
obligations.
Aaa
Insurance companies rated Aaa offer exceptional financial security. While the credit profile of these companies is likely to change, such changes as can be visualized are most
unlikely to impair their fundamentally strong position.
Aa
Insurance companies rated Aa offer excellent financial security. Together with the Aaa
group, they constitute what are generally known as high-grade companies. They are rated
lower than Aaa companies because long-term risks appear somewhat larger.
A
Insurance companies rated A offer good financial security. However, elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa
Insurance companies rated Baa offer adequate financial security. However, certain protective
elements may be lacking or may be characteristically unreliable over any great length of time.
Ba
Insurance companies rated Ba offer questionable financial security. Often the ability of
these companies to meet policyholder obligations may be very moderate and thereby not
well safeguarded in the future.
B
Insurance companies rated B offer poor financial security. Assurance of punctual payment
of policyholder obligations over any long period of time is small.
Caa
Insurance companies rated Caa offer very poor financial security. They may be in default
on their policyholder obligations or there may be present elements of danger with respect
to punctual payment of policyholder obligations and claims.
Ca
Insurance companies rated Ca offer extremely poor financial security. Such companies are
often in default on their policyholder obligations or have other marked shortcomings.
C
Insurance companies rated C are the lowest-rated class of insurance company and can be
regarded as having extremely poor prospects of ever offering financial security.
Note: Moody's appends numerical modifiers 1,2, and 3 to each generic rating classification from Aa through Caa.
Numeric modifiers are used to refer to the ranking within a group - with 1 being the bigbest and 3 being tbe lowest.
However, the financial strength of companies within a generic rating symbol (Aa, for example) is broadly the same.
Moody's Rating Symbols & Definitions
Short-Term Insurance Financial Strength Ratings
Short-Term Insurance Financial Strength Ratings are opinions of the ability of the insurance company
to repay punctually its short-term senior policyholder claims and obligations. The ratings apply to
senior policyholder obligations that mature or are payable within one year or less.
Specific obligations are considered unrated unless individually rated because the standing of
a particular insurance obligation would depend on an assessment of its relative standing under
those laws governing both the obligation and the insurance company.
P-l
Insurers (or supporti ng institutions] rated Prime-l have a superior abil ity for repayment of
senior short-term policyholder claims and obligations.
P-2
Insurers (or supporting institutions] rated Prime-2 have a strong ability for repayment of
senior short-term policyholder claims and obligations.
P-3
Insurers (or supporting institutions) rated Prime-3 have an acceptable ability for repayment
of senior short-term policyholder claims and obligations.
NP
Insurers (or supporting institutions) rated Not Prime (NP) do not fall within any of the Prime
rating categories.
When ratings are supported by the credit of another entity or entities, then the name or names
of such supporting entity or entities are listed within parenthesis beneath the name of the insurer, or
there is a footnote referring to the name or names of the supporting entity or entities.
In assigning ratings to such insurers, Moody's evaluates the financial strength of the affiliated
insurance companies, commercial banks, corporations, foreign governments, or other entities, but
only as one factor in the total rating assessment. Moody's makes no representation and gives no
opinion on the legal validity or enforceability of any support arrangement.
Moody's Rating Symbols & Definitions
Money Market and Bond Fund Ratings
Moody's Money Market and Bond Fund Ratings are opinions of the investment quality of shares
in mutual funds and similar investment vehicles which principally invest in short-term and long-term
fixed income obligations, respectively. As such, these ratings incorporate Moody's assessment of
a fund's published investment objectives and policies, the creditworthiness of the assets held by
the fund, as well as the management characteristics of the fund. The ratings are not intended to
consider the prospective performance of a fund with respect to appreciation, volatility of net asset
value, or yield.
Aaa
Money Market Funds and Bond Funds rated Aaa are judged to be of an investment quality similar to Aaa-rated fixed income obligations - that is, they are judged to be of the best quality.
Aa
Money Market Funds and Bond Funds rated Aa are judged to be of an investment quality
similar to Aa-rated fixed income obligations - that is, they are judged to be of high quality
by all standards.
A
Money Market Funds and Bond Funds rated A are judged to be of an investment quality
similar to A-rated fixed income obligations - that is, they are judged to possess many favorable investment attributes and are considered as upper-medium-grade investment vehicles.
Baa
Money Market Funds and Bond Funds rated Baa are judged to be of an investment quality similar to Baa-rated fixed income obligations - that is, they are considered as mediumgrade investment vehicles.
Ba
Money Market Funds and Bond Funds rated Ba are judged to be of an investment quality similar to Ba-rated fixed income obligations - that is, they are judged to have speculative elements.
B
Money Market Funds and Bond Funds rated B are judged to be of an investment quality
similar to B-rated fixed income obligations - that is, they generally lack characteristics of a
desirable investment.
Caa
Money Market Funds and Bond Funds rated Caa are judged to be of an investment quality similar to Caa-rated fixed income obligations - that is, they are of poor standing.
Ca
Money Market Funds and Bond Funds rated Ca are judged to be of an investment quality
similar to Ca-rated fixed income obligations - that is, they represent obligations that are
speculative in a high degree.
C
Money Market Funds and Bond Funds rated C are judged to be of an investment quality similar to C-rated fixed income obligations - that is, they are the lowest-rated class of bonds.
Note: Numerical modifiers 1,2 and 3 may be appended to each rating classification from Aa to Caa. The modifier 1 indicates that the fund or similar investment vehicle ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the fund or similar investment vehicle ranks in the lower end of its letter rating category.
Moody's Rating Symbols & Definitions
National Scale Ratings
Moody's assigns national scale ratings in certain local capital markets in which investors have
found the global rating scale provides inadequate differentiation among credits or is inconsistent
with a rating scale already in common use in the country.
Moody's currently maintains national scale ratings for the following countries:
Argentina (.ar)
Bolivia (.bo)
Brazil (.br)
Chile (.cl)
Czech Republic (.cz)
Mexico (.mx)
Russia (.ru)
Slovakia (.sk)
South Africa (.za)
Taiwan (.tw)
Tunisia (.tn)
Turkey (.tr)
Ukraine (.ua)
Uruguay (.uy)
Relative Rankings
Moody's National Scale Ratings are opinions of the relative creditworthiness of issuers and issues
within a particular country. While loss expectation will be an important differentiating factor in the
ultimate rating assignment, it should be noted that loss expectation associated with National Scale
Ratings can be expected to be significantly higher than apparently similar rating levels on Moody's
global scale.
Moody's National Scale Ratings rank issuers and issues in order of relative creditworthiness:
higher ratings are associated with lower expected credit loss.
Moody's Rating Symbols & Definitions
Not Globally Comparable
National Scale Ratings can be understood as a relative ranking of creditworthiness (including
relevant external support) within a particular country. National Scale Ratings are not designed to
be cornpared arnong countries; rather, they address relative credit risk within a given country. Use
of National Scale Ratings by investors is only appropriate within that portion of a portfolio that is
exposed to a given country's local rnarket, taking into consideration the various risks irnplied by
that country's foreign and local currency ratings.
Rating Criteria
National Scale Ratings take into account the intrinsic financial strength of the obligor, including
such traditional credit factors as rnanagernent quality, rnarket position and diversity, financial
flexibility, transparency, the regulatory environrnent, and the issuer's ability to rneet its financial
obligations through the course of norrnal local business cycles. Issuer segrnents subject to an
abrupt decline in creditworthiness will generally be rated lower than segrnents less exposed.
Certain external support factors rnay be taken into consideration, including instrurnent-specific
guarantees and indentures, and parent cornpany or governrnent support (if any).
Treatment of Sovereign Risk
National Scale Ratings take into account all credit risks that bear on tirnely and full payrnent of a
debt obligation, including sovereign related risks such as relative vulnerability to political
developrnents, national rnonetary and fiscal policies, and, in rare cases, foreign currency
convertibility and transfer risk.
Certain extrerne events, such as a local currency payrnent systern disruption, are largely
extraneous to the analysis (at least as a differentiating factor) since all issuers would probably be
equally affected by such a failure. In other extrerne cases, such as a governrnent rescheduling or
rnoratoriurn on local or foreign currency debt obligations, issuers or issues with higher ratings
should be relatively rnore insulated frorn such an event; nonetheless, in such a situation, even the
highest-rated entities rnay be at risk of ternporary default.
For this reason, the traditional concept of "investrnent grade" that is applied in the
international rnarkets cannot necessarily be applied even to the highest national ratings. Although
national governrnents are often in a position to receive the highest national credit ratings, it cannot,
in Moody's view, be taken for granted that a country's national governrnent is necessarily the best
credit on a dornestic scale, since it is possible for a governrnent to default on its local currency
obligations while other issuers continue to perforrn.
Moody's Rating Symbols & Definitions
National Scale Long-Term Ratings
The rating definitions are as follows, with an un" modifier signifying the relevant country, for
example, Aaa.br for Brazil, or Aaa.tw for Taiwan.
Aaa.n Issuers or issues rated Aaa.n demonstrate the strongest creditworthiness relative to other
domestic issuers.
Aa.n
Issuers or issues rated Aa,n demonstrate very strong creditworthiness relative to other
domestic issuers.
A.n
Issuers or issues rated A.n present above-average creditworthiness relative to other domestic issuers.
Baa.n Issuers or issues rated Baa.n represent average creditworthiness relative to other domestic issuers.
Ba.n
Issuers or issues rated Ba.n demonstrate below-average creditworthiness relative to other
domestic issuers.
B.n
Issuers or issues rated B.n demonstrate weak creditworthiness relative to other domestic issuers.
Caa.n Issuers or issues rated Caa.n are speculative and demonstrate very weak creditworthiness
relative to other domestic issuers.
Ca.n
Issuers or issues rated Ca.n are highly speculative and demonstrate extremely weak creditworthiness relative to other domestic issuers.
C.n
Issuers or issues rated en are extremely speculative and demonstrate the weakest creditworthiness relative to other domestic issuers.
Note: Moody's appends numerical modifiers I, 2, and 3 to each generic rating classification from Aa through
Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. National scale long-term ratings of D.ar and E.ar may also be applied to Argentinian obligations.
Moody's Rating Symbols & Definitions
National Scale Short-Term Ratings
Moody's short-term national scale debt ratings are opinions of the ability of issuers in a given country,
relative to other domestic issuers, to repay debt obligations that have an original maturity not
exceeding one year. Moody's short-term national scale ratings are a measure of relative risk within a
single market. National scale ratings in one country should not be compared with national scale
ratings in another, or with Moody's global ratings. Loss expectations for a given national scale rating
will generally be higher than for its global scale equivalent.
There are four categories of short-term national scale ratings, generically denoted N-1 through
N-4. In each specific country, the first two letters will change to indicate the country in which the
issuer is located, i.e. BR-1 through BR-4 for Brazil and TW-1 through TW-4 for Taiwan.
N-1
Issuers rated N-l have the strongest ability to repay short-term senior unsecured debt obligations relative to other domestic issuers.
N-2
Issuers rated N-2 have an above average ability to repay short-term senior unsecured debt
obligations relative to other domestic issuers.
N-3
Issuers rated N-3 have an average ability to repay short-term senior unsecured debt obligations relative to other domestic issuers.
N-4
Issuers rated N-4 have a below average ability to repay short-term senior unsecured debt
obligations relative to other domestic issuers.
Note: The short-term rating symbols P-1.za, P-2.za, P-3.za and NP.za are used in South Africa. National scale
short-term ratings of AR-S and AR-6 may also be applied to Argentinian obligations.
Moody's Rating Symbols & Definitions
Country Ceiling for Bonds and Other Foreign Currency
Obligations
Moody's assigns a ceiling for foreign-currency bonds and notes to every country (or separate
monetary area) in which there are rated obligors. The ceiling generally indicates the highest rating
that can be assigned to a foreign-currency denominated security issued by an entity subject to the
monetary sovereignty of that country or area. Ratings that pierce the country ceiling may be
permitted, however, for foreign-currency denominated securities benefiting from special
characteristics that are judged to give them a lower risk of government interference than is
indicated by the ceiling. Such characteristics may be intrinsic to the issuer and/or related to
Moody's view regarding the government's likely policy actions during a foreign currency crisis. The
country ceiling for foreign-currency bonds and notes is expressed on the long-term scale.
Country Ceiling for Foreign Currency Bank Deposits
Moody's assigns a ceiling for foreign-currency bank deposits to every country (or distinct monetary area) in which there are rated bank deposits. The ceiling specifies the highest rating that can
be assigned to foreign-currency denominated deposit obligations of 1) domestic and foreign
branches of banks headquartered in that domicile (even if subsidiaries of foreign banks); and 2)
domestic branches of foreign banks. The country ceiling for foreign-currency bank deposits is
expressed on the long-term scale.
Country Ceiling for Bonds and Other Local Currency
Obligations
Moody's assigns a local currency ceiling for bonds and notes to every country (or distinct
monetary areas) in order to facilitate the assignment of local currency ratings to issues and/or
issuers. Local currency ratings measure the credit performance of obligations denominated in the
local currency and therefore exclude the transfer risk relevant for foreign-currency obligations. They
are intended to be globally comparable.
Moody's Rating Symbols & Definitions
The local currency country ceiling for bonds summarizes the general country-level risks
(excluding foreign-currency transfer risk) that should be taken into account in assigning local
currency ratings to locally domiciled obligors or locally originated structured transactions. They
indicate the rating level that will generally be assigned to the financially strongest obligations in the
country, with the proviso that obligations benefiting from support mechanisms based outside the
country (or area) may on occasion be rated higher. The country ceiling for local currency bonds
and notes is expressed on the long-term scale.
Local Currency Deposit Ceiling
Moody's local currency deposit ceiling is the highest rating that can be assigned to the local
currency deposits of a bank domiciled within the rated jurisdiction. It reflects the risk that an
important bank would be allowed to default upon local currency deposits either due to limited local
currency resources or to the imposition of a domestic deposit freeze. As such, it reflects: (1) the
degree to which a country's ability to support an important bank may be limited due to a monetary
regime which does not permit the creation of unlimited quantities of local currency; and/or (2) the
risk of a local currency deposit freeze. The local currency deposit ceiling is expressed on the longterm scale.
Moody's Rating Symbols & Definitions
Equity Fund Ratings
Moody's equity and balanced/mixed fund ratings are opinions of past investment performance
and risk results achieved by mutual funds and investment vehicles which principally invest in
common stocks and related securities or in combination of these with fixed-income securities.
Equity Fund Ratings, expressed using a scale ranging between Aaa-EF and Ba-EF, incorporate
Moody's quantitative assessment of historical risk-adjusted total retum, manager skill and other
risk measures, combined with a qualitative evaluation of the fund's objectives, policies and
management characteristics relative to similarly managed funds.
The ratings are not intended to represent the prospective performance of a fund with respect to
appreciation, volatility of net asset value or yield.
Aaa-EF
Equity and balanced funds rated Aaa-EF demonstrate the strongest historical investment
performance results and adherence to fund objectives, relative to similarly managed
funds.
Aa-EF
Equity and balanced funds rated Aa-EF demonstrate strong historical investment performance results and adherence to fund objectives, relative to similarly managed funds.
A-EF
Equity and balanced funds rated A-EF demonstrate average historical investment performance results and adherence to fund objectives, relative to similarly managed funds.
Baa-EF
Equity and balanced funds rated Baa-EF demonstrate below-average historical investment performance results and adherence to fund objectives, relative to similarly managed funds.
Ba-EF
Equity and balanced funds rated Ba-EF demonstrate the weakest historical investment
performance results and adherence to fund objectives, relative to similarly managed
funds.
Note: Numerical modifiers 1, 2 and 3 may be appended to each rating classification from Aa to Ba (e.g., Aa3EFJ. The modifier 1 indicates that the fund or similar investment vehicle ranks in the higher end of the generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier J indicates that the fund or similar
investment vehicle ranks in the lower end of its letter rating category. In order to conform with local regulatory
mandates in markets such as Argentina, the rating category 0 would apply to the riskiest of funds and E to funds
which do not meet the minimum information requirements.
Moody's Rating Symbols & Definitions
Market Risk Ratings
Moody's Mutual Fund Market Risk (MR) ratings are opinions of the relative degree of volatility of a
rated fund's net asset value (NAV). In forming an opinion on the fund's future price volatility,
Moody's analysts consider risk elements that may have an effect on a fund's net asset value, such
as interest rate risk, prepayment and extension risk, liquidity and concentration risks, currency risk,
and derivatives risk. The ratings are not intended to reflect the prospective performance of a fund
with respect to price appreciation or yield.
MRl
Money Market Funds and Bond Funds rated MRl are judged to have very low sensitivity
to changing interest rates and other market conditions.
MR2 Money Market Funds and Bond Funds rated MR2 are judged to have low sensitivity to
changing interest rates and other market conditions.
MR3 Money Market Funds and Bond Funds rated MR3 are judged to have moderate sensitivity
to changing interest rates and other market conditions.
MR4 Money Market Funds and Bond Funds rated MR4 are judged to have high sensitivity to
changing interest rates and other market conditions.
MR5 Money Market Funds and Bond Funds rated MRS are judged to have very high sensitivity
to changing interest rates and other market conditions.
Note: A "+" modifier appended to the MR 1 rating category denotes constant NAV money market funds and other
qualifying funds.
Moody's Rating Symbols & Definitions
Investment Manager Quality Ratings
Moody's Investment Manager Quality ratings represent an assessment of the manner in which an
investment manager, either at a company or a business unit level, creates, manages and monitors
its investment offerings and serves its clientele. Investment managers are defined as entities
whose principal activities involve the management of retail, high net worth and/or institutional
assets.
The ratings incorporate Moody's assessment of an entity's investment management activities
and other management characteristics, including, as applicable, the performance of its product
offerings, its financial profile, and client servicing performance. The scope of Moody's assessment
applies to an entity's sphere of operations and may vary somewhat from one operational unit to
another.
Moody's Investment Manager Quality ratings do not indicate a company's ability to repay a
fixed financial obligation, or satisfy contractual financial obligations either in its own right or any that
may have been entered into through actively managed portfolios.
Also, the ratings are not intended to consider the prospective performance of a portfolio,
mutual fund or other investment vehicle with respect to appreciation, volatility of net asset value,
or yield.
Investment Manager Quality ratings may be assigned to investment management companies
and similar entities, public housing authorities (whose principle activity involves administering US
Department of Housing and Urban Development funds and managing public housing), or not-forprofit organizations whose principal activity involves administering government funds and
managing low income housing.
Investment Manager Quality rating definitions are, as follows:
MQl Entities rated MQl are judged to exhibit an excellent management and control environment.
MQ2 Entities rated MQ2 are judged to exhibit a very good management and control environment.
MQ3 Entities rated MQ3 are judged to exhibit a good management and control environment.
MQ4 Entities rated MQ4 are judged to exhibit an adequate management and control environment.
MQ5 Entities rated MQ5 are judged to exhibit a poor management and control environment.
Note: A "+" modjfjer may be appended to the MQl rating category to denote the strongest management and
control environment.
Moody's Rating Symbols & Definitions
Servicer Quality Ratings
Moody's Servicer Ouality (SO) ratings are opinions of the ability of a servicer to prevent or mitigate
losses in a securitization. SO ratings are provided for servicers who act as the Primary Servicer
(servicing the assets from beginning to end), Special Servicer (servicing only the more delinquent
assets), or Master Servicer (overseeing the performance and reporting from underlying servicers). For
Primary Servicers, each SO rating is assigned to a specific asset type.
SO ratings represent Moody's assessment of a servicer's ability to affect losses based on
factors under the servicer's control. The SO approach works by separating a servicer's
performance from the credit quality of the assets being serviced. In doing this, Moody's evaluates
how effective a servicer is at preventing defaults and maximizing recoveries to a transaction when
defaults occur.
SO ratings consider the operational and financial stability of a servicer as well as its ability to
respond to changing market conditions. This assessment is based on the company's
organizational structure, management characteristics, financial profile, operational controls and
procedures as well as its strategic goals.
Moody's SO ratings are different from traditional debt ratings, which are opinions as to the
credit quality of a specific instrument. SO ratings do not apply to a company's ability to repay a
fixed financial obligation or satisfy contractual financial obligations other than, in limited
circumstances, the obligation to advance on delinquent assets it services, when such amounts are
believed to be recoverable.
SQl
Strong combined servicing ability and servicing stability
SQ2
Above average combined servicing ability and servicing stability
SQ3
Average combined servicing ability and servicing stability
SQ4
Below average combined servicing ability and servicing stability
SQ5
Weak combined servicing ability and servicing stability
Note: Where appropriate, a "+" or "-" modifier will be appended to the 5Q2, 5Q3, and 5Q4 rating category and
a "-" modifier wdl be appended to the 5Ql rating category. A "+" modifier indicates the servicer ranks in the
higher end of the designated rating category. A "-" modifier indicates the servicer ranks in the lower end of the
designated rating category.
Moody's Rating Symbols & Definitions
Hedge Fund Operations Quality Ratings
A Moody's Hedge Fund Operations Quality rating expresses an opinion of a specific fund's
operations environment, given its investment strategy. The scope of the assessment includes the
fund's valuation process, accounting controls, legal structure, compliance system, backgrounds
of key personnel and relationships with service providers such as prime brokers, auditors and
administrators.
OQl Hedge funds rated OQ1 are judged to have an operational infrastructure of excellent
quality given their investment strategy.
OQ2 Hedge funds rated OQ2 are judged to have an operational infrastructure of very good
quality given their investment strategy.
OQ3 Hedge funds rated OQ3 are judged to have an operational infrastructure of good quality
given their investment strategy.
OQ4 Hedge funds rated OQ4 are judged to have an operational infrastructure of fair quality
given their investment strategy.
OQ5 Hedge funds rated OQ5 are judged to have an operational infrastructure of poor quality
given their investment strategy.
Note: Where appropriate, a "+" or "-" modifier will be appended to the OQ2, OQ3, and OQ4 rating category
and a "-" modifier will be appended to the OQl rating category. A "+" modifier indicates the fund ranks in the
higher end of the designated rating category. A "-" modifier indicates the fund ranks in the lower end of the designated rating category.
Moody's Rating Symbols & Definitions
Real Estate Portfolio Cash Flow Volatility Ratings
Moody's Real Estate Portfolio Cash Flow Volatility Ratings represent opinions about the risks in real
estate funds regarding cash flow volatility. Cash flow is defined here as Net Operating Income (NOI)
generated by a portfolio. Volatility is assessed quantitatively from a property database at Moody's
Japan, taking into consideration individual real estate property characteristics and portfolio
diversity effects. The ratings are Japanese domestic ones and used only in the domestic market.
They do not represent the risks regarding property value volatility. As assessments of an existing
portfolio, they are not monitored.
CFV-l
Portfolios rated CFV-l are judged to have the most stable NOli with minimal cash flow
volatility risk.
CFV-2 Portfolios rated CFV-2 are judged to have stable NOI, with low cash flow volatility risk.
CFV-3 Portfolios rated CFV-3 are judged to have moderate cash flow volatility risk.
CFV-4 Portfolios rated CFV-4 are judged to have substantial cash flow volatility risk.
CFV-5 Portfolios rated CFV-5 are judged to have high cash flow volatility risk.
Note: A "+" and "-" modifier may be appended to each rating classification from CF'V-2 to CF'V-S. The "+" modi-
fier indicates that the portfolio ranks at the higher end of its generic rating category; and the "-" modifier indicates
that it ranks at the lower end of its letter rating category. Ratings without modifiers indicate a mid-range ranking.
Moody's Rating Symbols & Definitions
Common Representative Quality Ratings
Moody's Common Representative Quality (CRQ) Ratings are opinions regarding an organization's
ability to represent the interests of investors, relative to other common representatives within a
given country. The ratings represent Moody's assessment of a common representative's
organizational structure and other management characteristics, including its human resources
allocation, information technology, and operational controls and procedures.
The rating definitions are as follows, with an "nn" modifier signifying the relevant country (e.g.
CRQ1.mx for Mexico). Moody's currently maintains common representative ratings for Mexico.
CRQ1.nn
Strong ability to represent interests of the trust certificate holders.
CRQ2.nn
Above-average ability to represent interests of the trust certificate holders. Common
representative is judged to have "good" financial and operational stability.
CRQ3.nn
Average ability to represent interests of the trust certificate holders. Common representative is judged to have average financial and operational stability.
CRQ4.nn
Below-average ability to represent interests of the trust certificate holders, and
below-average financial and operational stability.
CRQ5.nn
Weak ability to represent interests of the trust certificate holders, and weak financial
and operational stability.
Note: Where appropriate, a "+" or "." modifier will be appended to the CRQ2, CRQ3, and CRQ4 rating cate·
gory and a "." modifier will be appended to the CRQ 1 rating category (e.g. CRQ1·.nn). A "+" modifier indicates
the common representative ranks in the higher end of the designated rating category. A "." modifier indicates the
common representative ranks in the lower end of the deSignated rating category.
Moody's Rating Symbols & Definitions
Trustee Quality Ratings
Moody's Trustee Quality (TQ) Ratings are opinions regarding an organization's ability to manage
the entrusted assets for the benefit of investors, relative to other trustees within a given country.
The ratings represent Moody's assessment of a trustee's organizational structure and other
management characteristics, including its monitoring and reporting system, human resources
allocation, information technology, operational controls and procedures, and master servicing
capability.
The rating definitions are as follows, with an "nn" modifier signifying the relevant country (e.g.
TQ1.ar for Argentina, or TQ4.mx for Mexico). Moody's currently maintains trustee quality ratings
for the following countries:
Argentina (TQ.ar)
Brazil (TQ.br)
Mexico (TQ.mx)
TQ1.nn
Strong capability of managing entrusted assets for the benefit of the trust certificate
holders.
TQ2.nn
Above-average capability of managing entrusted assets for the benefit of the trust certificate holders. Trustee is judged to have "good" financial and operational stability.
TQ3.nn
Average capability of managing entrusted assets for the benefit of the trust certificate
holders. Trustee is judged to have average financial and operational stability.
TQ4.nn
Below-average capability of managing entrusted assets for the benefit of the trust certificate holders, and below-average financial and operational stability.
TQ5.nn
Weak capability of managing entrusted assets for the benefit of the trust certificate
holders, and weak financial and operational stability.
Note: Where appropriate, a "+" or "_I! modifier will be appended to the TQ2, TQ3, and TQ4 rating category and
a "_I! modifier will be appended to the TQl rating category
TQ1-.nnJ. A "+I! modifier indicates the trustee
ranks in the higher end of the designated rating category. A
modifier indicates the trustee ranks in the lower
end of the designated rating category.
Moody's Rating Symbols & Definitions
Lloyd's Syndicate Performance and Volatility Ratings
Moody's Lloyd's Syndicate Performance and Volatility Ratings have been developed in response
to the needs of capital providers and insurance purchasers involved with the Lloyd's Market to
compare the relative attraction of individual syndicates. The desire to identify those syndicates with
the potential to outperform over the medium to long term is coupled with the requirement to
identify syndicates with whom insurance purchasers are content to build long-term business
relationships. Moody's Lloyd's Syndicate Performance and Volatility Ratings aim to address these
needs.
Lloyd's Syndicate Ratings
Qualitative ratings for each syndicate, based on an assessment of both quantitative and qualitative
information, indicate Moody's view of the syndicate's relative long-run potential performance
based on currently known factors. The ratings are relative to the rest of the syndicates operating
in the Lloyd's market. It should be stressed that the ratings do not attempt to assess the security
underlying Lloyd's policies.
The syndicate rating is forward looking, only using historical data as a basis for the
assessment of the syndicate's future potential. The emphasis is therefore on a given syndicate's
potential future performance rather than claims-paying ability.
Moody's Rating Symbols & Definitions
A+
lloyd's syndicates rated A+ for performance offer excellent performance and continuity
characteristics, with a very high degree of likelihood that their potential future returns will
significantly outperform the market average result over the cycle, and a very limited likelihood that their fundamentally strong position will be impaired.
A
Lloyd's syndicates rated A for performance offer very good performance and continuity
characteristics, with a high degree of likelihood that their potential future returns will significantly outperform the market average result over the cycle. They are rated lower than
A+ because longer-term risks appear somewhat larger.
A-
Lloyd's syndicates rated A- for performance offer good performance and continuity characteristics, with a high degree of likelihood that their potential future returns will outperform the market average result over the cycle.
B+
Lloyd's syndicates rated B+ for performance offer above-average performance and continuity characteristics, with a good degree of likelihood that their potential future returns will
outperform the market average result over the cycle.
B
Lloyd's syndicates rated B for performance offer average performance and continuity characteristics, with the likelihood that their potential future returns will be in line with the
market average result over the cycle.
B-
Lloyd's syndicates rated B- for performance offer below average performance and continuity characteristics, with it being questionable whether their potential future returns will
be in line with the market average result and the likelihood that they will perform below
the market average result over the cycle and that they will offer below average continuity
prospects to policyholders.
C+
Lloyd's syndicates rated C+ for performance offer below-average performance and continuity characteristics, with a good degree of likelihood that their potential future returns will
be below the market average result over the cycle and that they will offer below-average
continuity prospects to policyholders.
C
Lloyd's syndicates rated C for performance offer below-average performance and continuity characteristics, with a good degree of likelihood that their potential future returns will
be significantly below the market average result over the cycle and that they will offer significantly below-average continuity prospects to policyholders.
C-
Lloyd's syndicates rated C- for performance offer below-average performance and continuity characteristics, with a high degree of likelihood that their potential future returns will
be significantly below the market average result over the cycle and that they will offer significantly below-average continuity prospects to policyholders.
Moody's Rating Symbols & Definitions
Lloyd's Volatility Ratings
The volatility rating indicates Moody's view of the potential variability of a syndicate's underwriting
returns over the insurance cycle based on the historical variability of pure year underwriting returns
and the potential for catastrophe losses in the book currently underwritten, the ratings being relative
to the rest of the syndicates operating in the Lloyd's market.
Extremely High
Lloyd's syndicates rated Extremely High for volatility demonstrate the potential
for returns to vary significantly from their mean due to the nature of the book
of business written. Syndicates in the Extremely High rating category include
all those syndicates demonstrating potential volatility in their returns that is in
excess of the six relative rating categories of Low to Very High, this category
not being relative on an absolute basis to the underlying rating categories.
Very High, High,
Above Average,
Average,
Below Average
Lloyd's syndicates rated in these categories are considered to demonstrate
the potential for their returns to be respectively up to two, three, four, five
and six times more variable than those syndicates in the low rating
category, due to the nature of the book of business written.
Low
Lloyd's syndicates rated Low for volatility demonstrate the lowest potential
for returns to vary from their mean, relative to the other syndicates trading at
Lloyd's, due to the nature of the book of business written.
Moody's Rating Symbols & Definitions
In determining equity credit for a hybrid security, Moody's analyzes the instrument along three
dimensions of equity: No Maturity, No Ongoing Payments, and Loss Absorption. For each of these
dimensions, Moody's ranks the instrument's features as either None, Weak, Moderate, or Strong,
where None represents more debt-like and Strong represents more equity-like. The equity credit
assigned to the instrument - expressed in baskets from A to E - weights the rankings for each
dimension depending on the credit quality of the issuer.
Classifications for Hybrid Baskets
Basket
Debt
Equity
A
1000,!"
0
B
75°;\,
25%
C
50";\,
50%
0
25%
75%
E
0%
100%
Moody's Rating Symbols & Definitions
Expected ratings - e
To address market demand for timely information on particular types of credit ratings, Moody's has
licensed to certain third parties the right to generate "Expected Ratings." Expected Ratings are
designated by an "e" after the rating code, and are intended to anticipate Moody's forthcoming
rating assignments based on reliable information from third party sources (such as the issuer or
underwriter associated with the particular securities) or established Moody's rating practices (i.e.,
medium term notes are typically, but not always, assigned the same rating as the note's program
rating). Expected Ratings will exist only until Moody's confirms the Expected Rating, or issues a
different rating for the relevant instrument. Moody's encourages market participants to contact
Moody's Ratings Desk or visit www.moodys.comif they have questions regarding Expected
Ratings, or wish Moody's to confirm an Expected Rating.
Provisional Ratings - (P)
As a service to the market and typically at the request of an issuer, Moody's will assign a
provisional rating when it is highly likely that the rating will become final after all documents are
received, or an obligation is issued into the market. A provisional rating is denoted by placing a (P)
in front of the rating. Such ratings may also be assigned to shelf registrations under SEC rule 415.
Refundeds - #
Issues that are secured by escrowed funds held in trust, reinvested in direct, non-callable US
government obligations or non-callable obligations unconditionally guaranteed by the US
Government or Resolution Funding Corporation are identified with a # (hatch mark) symbol, e.g.,
#Aaa.
Moody's Rating Symbols & Definitions
Withdrawn - WR
When Moody's no longer rates an obligation on which it previously maintained a rating, the symbol
WR is employed.
Please see Moody's Guidelines for the Withdrawal of Ratings, available on
www.moodys.com.
Not Rated - NR
NR is assigned by a rating committee to an unrated issuer, obligation and/or program.
Not Available - NAV
An issue that Moody's has not yet rated is denoted by the NAV symbol.
Terminated Without Rating - TWR
The symbol TWR applies primarily to issues that mature or are redeemed without having been
rated.
Moody's Rating Symbols & Definitions
Credit Estimates
Credit estimates are one-time opinions of the approximate credit quality of individual securities or
financial contracts. They are opinions about overall credit quality and are generally used in
conjunction with a securitization.
Internal Ratings
Moody's internal ratings are unpublished credit assessments assigned to certain securities and
issuers where the underlying credit components are not publicly rated but need to be evaluated
to support other published ratings.
Underlying Ratings
An underlying rating is Moody's published assessment of a particular debt issue's credit quality
absent credit enhancement. Moody's will assign and publicly release an underlying rating
requested by an issuer for debt that is entirely credit enhanced. The rating scale is identical to the
one used for Moody's long-term obligation ratings.
Moody's Rating Symbols & Definitions
Rating Outlooks
A Moody's rating outlook is an opinion regarding the likely direction of an issuer's rating over the
medium term. Where assigned, rating outlooks fall into the following four categories: Positive
(POS), Negative (NEG), Stable (STA), and Developing (DEV - contingent upon an event). In the few
instances where an issuer has multiple ratings with outlooks of differing directions, an "(m)"
modifier (indicating multiple, differing outlooks) will be displayed, and Moody's written research will
describe any differences and provide the rationale for these differences. A RUR (Rating(s) Under
Review) designation indicates that the issuer has one or more ratings under review for possible
change, and thus overrides the outlook designation. When an outlook has not been assigned to
an eligible entity, NOO (No Outlook) may be displayed.
Watch list
Moody's uses the Watchlist to indicate that a rating is under review for possible change in the
short-term. A rating can be placed on review for possible upgrade (UPG), on review for possible
downgrade (DNG), or more rarely with direction uncertain (UNC). A credit is removed from the
Watchlist when the rating is upgraded, downgraded or confirmed.
Confirmation of a Rating
A confirmation occurs when a rating is removed from Watchlist. Rating confirmations are formally
entered in Moody's databases and rating action lists (rating release sheets), and are
communicated via a press release.
Affirmation of a Rating
Affirmations are used to indicate that the current rating remains in force. Affirmations are
communicated through a press release and may occur:
following an informal review
following the release of new information by the issuer
following a major market event (such as regulatory changes, a major acquisition, and/or
market turbulence, etc.)
in conjunction with an Outlook change
There may be other situations in which ratings are affirmed.
Moody's Rating Symbols & Definitions
Moody's Rating Symbols & Definitions
Moody's Rating Symbols & Definitions
Moody·s Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
AUTHOR:
SUMMARY OPINION:
Kathryn Kelbaugh
Vice President Senior Analyst
(212) 553-3645
Kathy Kelbaugh
@moodys.com
This report describes our enhanced approach to originator assessments. Our enhanced approach will apply
to originators seeking to issue new U.S. RMBS after
publication of this report. Moody's welcomes your
comments pertaining to this special report, please
direct them to cpc@moodys.com.
CONTRIBUTING
AUTHOR:
Originator quality can have a significant positive or negEric Fellows
ative effect on pool performance and, by extension, on
Vice President - Senior
the credit enhancement levels called for to support a
Credit Officer
tranche at a given rating level. The originator assess(415) 274-1728
Eric.Fellows@moodys.com
ment looks to isolate the effect an originator's policies
and
practices have on loan performance from the
CONTACTS:
effects of external factors such as the macroeconomic
Navneet Agarwal
environment and the ability of the servicer.
Team Leader
212-553-3674
Our assessment of originators focuses principally on:
Navneet.Agarwal
@Moodys.com
i)
Linda Stesney
Managing Director
212-553-3691
Linda.Stesney@Moodys.com
MOODY'S
CLIENT SERVICES:
New York
+ 1-212-553-1653
Tokyo
+81-3-5408-4100
London
+44-20-7772-5454
Hong Kong
+852-3551-3077
Sydney
+61-2-9270-8100
Singapore
+65-6398-8308
WEBSITE:
www.moodys.com
ii)
Performance: An originator's track record of originating loans that under-perform, meet or exceed
Moody's model loss expectations after neutralizing
for variations in loan characteristics and economic
environments.
Ability: The originator's lending practices, primarily
concentrated on the process for assessing a borrower's ability and willingness to repay a loan, originator ability factors include
a.
sales and marketing practices;
b. consistency in underwriting loans within prescribed underwriting guidelines;
c.
property valuation management practices, policies and procedures;
d. closing and post closing policies and practices
including lien perfection procedures;
Overview of Moody's
RMBS Enhancement
Proposals
On March 26, 2008, Moody's
published five proposals to
enhance the U.S. RMBS
securitization process. 1 Those
proposals were: increased loan
level data, stronger
representations and warranties,
independent third-party presecuritization loan reviews,
standardized forensic reviews for
underperforming loans, and more
comprehensive originator
assessments. These
enhancements are intended to
work together to improve the
reliability and transparency of
information for RMBS
transactions.
This paper addresses Moody's
approach to more comprehensive
originator assessments.
Separate papers released
concurrently with this paper focus
on stronger representations and
warranties and independent third
party pre-securitization reviews
and post-securitization forensic
reviews.
Moody's continues to work with
the American Securitization
Forum (ASF) on Project RESTART
and the Securities Industry and
Financial Markets Association
(SIFMA) to achieve an industry
consensus for our proposed
enhancements for U.S.RMBS
securitization, including increased
loan level data. The results of
these projects are expected to be
reported in Moody's publications
throughout 2009.
d. management of brokers and correspondents;
and
e.
credit risk management.
See "M.QQd.y.~$..E?LQP.Q.$.e.d.EobQ.D.Qe.m.e.Qu.Q.U.5.,.Be.s.ld§.o.tlQ.J.MQ[.tgQ.Q.e..s.e.QwrjtjbQ.tjQ.os.~.CglLfQ[..CQm.m§D1$." ,
Moody's Structured Finance, March 26, 2008
** As of September 22. 2009 this methodology contains an update regarding seasoned
loans in the annex at the end of the report. **
Moody's Investors Service
Originally electronically published on November 24, 2008,
but due to minor changes republished on October 5, 2009
iii) Stability: The resources that an originator brings to bear in maintaining or improving on the quality of the
loans that they originate. Key attributes of originator stability include financial strength, management
strength, staff quality, quality control, internal audit, technology and other support functions that lead to
operational stability.
Originator assessments are intended to provide a performance-based, third-party assessments that will allow
RMBS market participants a consistent comparison across originators. Moody's originator assessments are
comprised of component assessments which roll up to an aggregate assessment. Moody's will publish its originator assessment reports on Moodys.com.
Originator Participation
Moody's enhanced reviews will require regular and active originator participation. For originators that want a
Moody's rating on future RMBS, Moody's expects that in most cases it will conduct on-site reviews every 12 to
18 months. Moody's expects that these site visits will be supplemented by quarterly reports supplied by the
originator that detail loan production characteristics and performance by loan program, changes in underwriting
guidelines, underwriting/program exceptions, audited financial statements, repurchase activity, audit findings,
significant IT initiatives and other relevant information described in Exhibit 1. In addition, calls with key management to review reports and data trends generally will be held quarterly. Finally, Moody's will seek to review the
results of the third-party pre-securitization loan-level review for each transaction to which the originator contributed loan collateral during the latest rolling 18 months, whether the transaction was rated by Moody's or not.
Where third-party pre-securitization loan-level review data is sparse, stale or unavailable, Moody's may request
that a third party loan-level review be conducted which is unaffiliated with any particular securitization or may look
for other alternative methods to evaluate the originator's ability to comply with its own policies and procedures.
Originator assessments will be applicable to lenders that originate and securitize prime, alt-A and subprime,
first- and second-lien, U.S. residential mortgage loans.
Originator assessments will also be applicable to aggregators that issue RMBS with underlying loans originated
by multiple lenders. Throughout this report the term "originator" will apply to both lenders and aggregators.
Moody's will not rate an RMBS transaction in which any loans are contributed by an originator whose assessment is "unacceptable" or that include loans from unassessed originators that receive a Grade of CorD from
the third party pre-securitization review. 2
For each loan in the securitization, the party providing the loan-level representations and warranties
will be considered the originator of that loan for purposes of Moody's originator review. Representation and warranty providers with little or no tangible net worth and no origination platform would
likely be assessed as "unacceptable" under our enhanced originator assessments. 3
Moody's will conduct an originator assessment for any single originator whose loans represent more than 10%
of an RMBS pool. For originators contributing 10% or less to the pool, where Moody's does not have a current
originator assessment,4 we generally will require a third-party pre-securitization review of 100% of the loans
from that originator. 5 We also may seek to review historic loan level performance of loans originated byoriginator's contributing more than 5% [but less than 10%] of the loans in the pool.
2
3
4
5
See "MQ9_dy'!?_Ccil"[i<'l_fQc_EygJJ,t<'ltiog_JJJd"p_,,od§DJ_II:lJIdcP<'lIt)I_L9_<'lo_L§YJ:J1B§yJ§W$_JQ[__U,_S,_B§!?id_"oti<'l!_M_Q[tg<'lg~_B<'l_Cl,-"d_S~!:;J)Iiti,,!?_(BM8S)",
Moody's Structured Finance, November 24, 2008.
Moody's will consider an entity other than the representation and warranty provider as the originator only if such entity has provided the securitization trust with an irrevocable guaranty of the representation and warranty provider's obligations (or other similar arrangement).
Generally, an originator assessment is considered current if Moody's has consistently received the quarterly reporting described in Exhibit 1, had an
on site review within the prior 18 months and has had third party review results for securitizations within the prior 12 months.
See "MQ9_dy'!?_CCil"[i<'l_fQI_EygJJ,t<'ltiOg_JJJd~p_,,od§DJ_II:lJIdcP<'l_[ty_L9_<'lO_L§YJ:J1B§yj§W$_JQ[__U,_S,_B§!?jd_"oti<'l!_M_Q[tg<'lg~_B<'l_Cl,-"d_S~q)Iiti,,!?_(BM8S)",
Moody's Structured Finance, November 24, 2008.
2 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
ORIGINATOR ASSESSMENT
Assessment Levels:
Moody's will assign originators one of six different assessments listed in the table below. Individual assessments
will be provided for each originator for each loan type that they originate and securitize (prime, alt-A and
subprime, first- and second-lien residential mortgages):
ASSESSMENT LEVEL
Strong
Above Average
Average
Below Average
Weak
Unacceptable
Assessment Score
<=1.5
> 1.5 and <=2.5
>2.5 and <3.5
=>3.5 and <4.5
=>4.5 and <= 5.0
> 5.0
As seen on Chart 1, Moody's originator assessment incorporates a review of 1) historical loan performance
weighted at 40%, 2) origination ability weighted at 30% and 3) origination stability weighted at 30%. The
weightings assigned to each of these components generally reflect the degree to which Moody's believes that
component provides insight about an originator's loan credit quality. These weights assume that an originator
does not have any significant defects in any of the individual components. The weights may vary under those
and certain other circumstances.
The subcomponents for historical loan performance will focus primarily on payment defaults during the first 18
months, while the subcomponents for originator ability will focus on the originator's policies and procedures.
The originator stability subcomponents will focus on support functions such as human resources, finance and
information technology that lead to operational stability.
The subcomponents shown on Chart 1 will be the focus of Moody's originator assessment. The weightings of
the subcomponents will vary based on, among other things, the mortgage type the originator originates as well
as any significantly deficient or exceptional finding for anyone or more subcomponents. An "unacceptable"
assessment in any component is likely to result in an overall originator assessment of "unacceptable".
Chart 1
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MOODWSORIGINATORASSESSMENTCOMPONENTS
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
j
Moody's Investors Service • 3
Originator Loan Performance
Loan performance accounts for approximately 40% of our overall originator assessment. The assessment for
originator loan performance is comprised of five different subcomponents: 1) early stage serious delinquencies
measured at 3 and 6 months; 2) mid stage serious delinquencies measured at 12 and 18 months; 3) late stage
serious delinquencies measured at 24+ months; 4) representation and warranty repurchase performance; and
5) mortgage insurance claim denials. 6
Moody's believes the relative strength of an originator's practices, policies and procedures will primarily manifest in early loan performance, generally during the first 18 months. When assessing loan performance, to the
extent possible, Moody's will neutralize the effect of variations in loan characteristics and economic environments in order to isolate the effect of the originator's practices on performance. Moody's is of the opinion that
early stage serious delinquency rates largely are a function of loan origination quality and that longer-term loan
performance is driven mainly by servicing quality (assuming consistent loan quality based on loan characteristics) as well as borrower life events (which are not controlled by the originator). Therefore, while life-of-Ioan performance is reviewed as part of our originator assessment, Moody's primarily focuses on serious delinquency
rates during the first 18 months following origination.
The volume of repurchase demands and mortgage insurance denials are additional metrics that Moody's will
utilize to further support our assessment of performance.
Originator Ability:
Moody's review of an originator's ability will primarily serve to evaluate if the originator's future loan performance
will be of the same, better or worse quality than its past loan performance.
Moody's review of an originator's overall ability, loan origination strategy, loan origination policies, procedures
and credit performance oversight is the next part of the originator assessment process. Originator ability
accounts for approximately 30% of our overall originator assessment. This includes a review of the following six
subcomponents:
1) sales and marketing practices - the manner in which an originator sets its loan production strategy and
associated underwriting and sales approach to originate loans of a targeted quality;
2) underwriting policy and procedures - the robustness of the originator's loan approval guidelines and adherence thereto;
3) property valuation policies and procedures - the process by which an originator establishes an accurate
property valuation for the purpose of determining loan-to-value;
4) closing/funding/post closing policy and procedures - the process undertaken by an originator to make certain that all loan conditions are met before closing and that liens are perfected and assigned to the trust as
appropriate;
5) third-party originator management - an assessment of broker and correspondent approval process and the
processes in place to monitor and manage broker and correspondent loan credit quality; and
6) credit risk management - the oversight implemented by an originator to continually assess actual loan performance against expected loan performance and adjust loan production strategies accordingly.
For aggregators, Moody's originator ability assessment will primarily focus on third party originator (TPO) management and credit risk management.
6
A "seriously delinquent" loan is one that is 60+ days delinquent, in foreclosure, REO, or the loan was modified or a short payoff occurred and the
lender experienced a loss or the borrower has filed for bankruptcy.
4 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
Sales and Marketing Practices
Moody's assessment of an originator's sales and marketing practices will be a qualitative review. A table with
some of Moody's key sales and marketing review criteria is below:
Assessment
Level
Strong
Score = 1
Average
Score = 3
Weak
Score = 5
Unacceptable
Score=6
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Moody's Qualitative Sales & Market Policy and Procedures Review:
Selected Criteria
Glear separation OT and Independence OT sales and loan approval TUnctlons.
Little or no change in undelWriting guidelines through reduced demand cycles.
UndelWriting exception rates are constant through demand cycles.
Loan Officers' / Brokers' compensation is significantly tied to loan quality and loan performance.
Loan Officer customer solicitation/advertising is produced, monitored and approved by management.
Sales staff has minimal influence on loan approval functions.
Moderate changes in undelWriting guidelines through reduced demand cycles.
Moderate increase in exception rates during reduced demand cycles.
Loan Officers' / Brokers' compensation has some components related to loan performance.
Loan Officer customer solicitation/advertising by Loan Officers is monitored by management.
Little or no separation of and Independence of sales and loan approval functions.
UndelWriting guidelines relax significantly through reduced demand cycles.
Exception loans increase drastically during reduced demand cycles.
Loan Officers' / Brokers' compensation not tied to loan performance.
Loan officer customer solicitation/advertising is unrestrained and unmonitored by management.
Sales activity and loan approval handled by same group.
UndelWriting guidelines do not exist in a format the enables the assessor to determine if guidelines have
been relaxed through reduced demand cycles or that exception loans are being made.
Loan Officers' / Brokers' compensation tied to loan production only.
Loan Officer customer solicitation/advertising is completely untethered to management or compliance
reviews.
Moody's believes that separation and independence of the sales function from the loan approval process is a
critical element for an originator to consistently originate high quality loans.
During periods of growth in the housing and mortgage markets, increased borrowing demand allows existing
mortgage lenders to expand their business and new lenders to enter the market. Eventually these trends create
overcapacity in the mortgage lending market as borrowing demand slows or falls. As mortgage demand ebbs,
competition among lenders increases for the reduced pool of borrowers, and lenders may lower credit underwriting standards in order to maintain or grow origination volume. Deterioration of underwriting standards is evidenced by relaxed underwriting guidelines, increased exceptions to guidelines or both. Moody's originator
assessment will monitor the credit consistency of offered mortgage loan products across economic cycles in
order to identify any shifting policy trends from the originator's typical credit risk management to riskier credit
practices designed to enhance origination volumes.
Originator compensation plans will be reviewed to assess whether loan officers and sales staff are rewarded not
only for production volume, but also for production quality as measured by loan performance for some period of
time after origination.
An originator's business strategy and solicitation practices have a material impact on the quality of loans that
are originated and their ensuing credit performance. Moody's assesses the marketing methods and targeted
markets for each originator to gain an understanding of the originator's customer acquisition model and its
associated risks and rewards.
Underwriting Policies and Procedures
Moody's assessment of an originator's underwriting policies and procedures will consist of two parts. The first
part will be a qualitative review of the originator's underwriting policies and procedures as shown in the table
below.
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
Moody's Investors Service • 5
Assessment
Level
•
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Strong
Score = 1
•
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•
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Average
Score = 3
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Moody's Qualitative Underwriting Policy & Procedures Review:
Selected Criteria
Thorough and unambiguous written guidelines with very limited exception to product guidelines.
- Where exception are made there a unambiguous compensating factors which are well documented.
Robust process for assessing borrower's willingness and ability to repay the loan, including:
- originator does not overly rely on internal or external credit scores;
the number of tradelines and tradeline limits, age and derogatories are analyzed with equal impor0
tance to the FICO score.
- originator utilizes tri-merge credit reports and does not use the highest FICO score for loan approval;
- compensating factors and required approvals are thoroughly documented;
- complete and thorough 1008s (undelWriting transmittal summary) which accurately portray the key
elements used to approve a loan.
UndelWriters employ robust processes for verifying and reviewing the reasonableness of the information
stated on the loan application with a particular focus on :
- income, for all loans is checked for reasonableness, including extensive pre-closing use of a 4506T;
- assets are verified with bank and other financial account statements;
- employment status is verified rigorously, using techniques that involve more than a phone call to the
employer.
Rigorous effort to confirm occupancy status.
Anti-fraud software tools are integrated with the loan origination system (LOS) and utilized pre-closing for
each loan. Well-defined procedures exist for clearance of high risk loans.
UndelWriter compensation plans are based on credit quality not volume.
UndelWriter approval authority is robust and is based on the undelWriter's experience, tenure, and quality of
loans undelWritten.
UndelWriters have adequate time to thoroughly review each loan file.
Written guidelines exist, yet undelWriter discretion is exercised liberally within 5% of most product parameters, but the required documentation is typically met or exceeded.
Standard process for assessing borrower's willingness and ability to repay the loan, including:
- originator relies on FICO or other internal or external credit scores with some weight given to trade lines
and assets as further support of creditworthiness;
- originator utilizes tri-merge credit reports and does not use the highest FICO score for loan approval;
- compensating factors occur often but are usually documented and required approvals are documented;
- 1008s (undelWriting transmittal summary) are completed but fall short of providing a complete depiction of credit worthiness or motivation for approving the loan.
UndelWriters employ standard processes for verifying and reviewing the reasonableness of the information
stated on the loan application, including:
- Income is generally checked for reasonableness.
Use of 4506T for income reasonableness check for income is used primarily for self employed bor0
rowers pre-closing and most other post-closing for QC purposes;
- assets generally are verified;
- employment status is confirmed telephonically.
There is discernable effort to confirm occupancy status.
Anti-fraud software tools are used for some loans on a pre-closing basis, but used primarily as QC tools
post closing.
UndelWriter compensation plans are based on credit quality and volume.
UndelWriter approval authority is based on the undelWriter's experience, tenure, and quality of loans underwritten.
UndelWriters generally have adequate time to thoroughly review each loan file, but may be pressed in times
of high volume.
6 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
Assessment
Level
•
•
Weak
Score = 5
Unacceptable
Score = 6
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Moody's Qualitative Underwriting Policy & Procedures Review:
Selected Criteria
Written guidelines are often ambiguous; underwriter discretion and exceptions occur on more than 25% of
production.
Weak process for assessing borrower's willingness and ability to repay the loan.
- underwriter relies heavily on FICO or other internal or external credit scores and obtains documentation
only as required by these scores/systems.
- single repository FICO score is used
credit tradelines are not regarded
0
- compensating factors are not thoroughly documented, underwriter authority and approval requirements are ambiguous
- 1008s are incomplete (underwriting transmittal summary)
Underwriter processes for verifying and reviewing the reasonableness of the information stated on the loan
application are weak or non existent, including:
- little or no check for the reasonableness of income;
- assets are not or poorly or incompletely documented;
- employment status is not checked for reasonableness; and
- no discernable effort to confirm occupancy status.
Little or no use of anti-fraud software tools.
Underwriter compensation plans primarily based on volume with little regard to past credit performance.
Underwriter approval authority is unclear or lax and not based on past performance.
Underwriters do not have adequate time to thoroughly review each file or production quotas are set.
NO written underwriting gUidelines.
No underwriting documentation, no 1008 (underwriting transmittal summary).
No income reasonableness check.
Reasonableness of occupancy status not reviewed.
Loan Officer approves the loan.
No underwriter approval authority policy.
The second part of Moody's underwriting policy and procedure review will incorporate the results of independent third-party loan-level credit reviews conducted for the originator's securitizations for the relevant, recent
past. Appendix 1 provides Moody's assessment criteria for this review.
The primary factors in Moody's review of each originator's underwriting policies and procedures are (i) the manner in which originators gauge the ability and willingness of a borrower to repay the mortgage loan, (ii) the depth
and robustness of an originator's lending guidelines, and (iii) the level of adherence to underwriting guidelines
especially through different economic cycles.
Accurately assessing a borrower's income, employment status and prospects, assets, and overall debt burden
is key to evaluating a borrower's ability to repay the loan. Regardless of documentation type, Moody's will
assess the rigor of an originator's processes to assess the reasonableness, reliability and stability of a borrower's income. In this age of easily produced fraudulent documentation, it is important that originators employ
a variety of measures to test the authenticity and reasonableness of the information provided. To this end, lenders that compare the income stated on the mortgage application to the borrower(s) taxable income reported to
the IRS through processing form 4506T (where possible) prior to loan approval are viewed as having best-inclass income verification procedures. Other processes, such as the employment verification and asset verification methods that an originator uses to support the reasonableness of income also are analyzed.
The manner in which an originator qualifies a borrower for a mortgage loan will be reviewed. Another important
factor in assessing the ability of the borrower to repay the loan is the method by which a borrower's debt burden is determined. Moody's believes that all reasonably anticipated monthly living expenses and resultant
residual income should be considered by a lender when determining a borrower's ability to afford the monthly
payments on a mortgage loan. Moody's assessment will include a review of the qualifying rate and associated
payment used to calculate the monthly principal and interest payment as well as the extent to which taxes,
insurance, homeowners dues and other typical, required housing expenses are included in the debt burden.
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
Moody's Investors Service • 7
Finally, Moody's will review the policies and procedures for underwriters to incorporate monthly payment obligations associated with all other outstanding debt.
The approach taken by an originator to assess a borrower's willingness to repay the loan will also be examined.
Moody's will review the processes employed by the originator to determine representative credit scores
whether internal or credit repository based. In addition, Moody's will seek to determine if the originator relies
solely on credit and mortgage scores to judge willingness to repay, or whether the originator conducts a thorough review of the borrower's credit trade line history. Moody's will take a positive view of originators that analyze the number of trade lines a borrower has as well as the trade line age, limits, outstanding balances and
derogatories when underwriting a loan.
The originator's requirement for and verification of the level of the borrower's own equity in the home relative to
its market value and the occupancy of the property will be reviewed by Moody's. Inaccuracy surrounding the
borrowers' occupancy status has been problematic in recent origination vintages. Moody's evaluates each
originator's process for assessing the borrower's actual and intended occupancy status. A lender should be
vigilant of inconsistencies that would call into question the occupancy status. Underwriters that proactively verify and document support for the occupancy status will be considered superior to those that simply accept
what the borrower states on the mortgage loan application.
Moody's also will analyze the originator's underwriting guidelines, the level of exceptions made to those guidelines and the exception approval process. In general, Moody's positively views originators that have comprehensive underwriting guidelines where the vast majority of loans are originated without exceptions. While an
underwriter's discretion and expertise have the ability to add significant value to the underwriting process, the
originator's guidelines should be well defined so that underwriters have clear direction on acceptable discretion
limits. Further, Moody's will view favorably compensation plans for underwriters that create incentives to produce high credit quality loans that generally adhere to underwriting guidelines.
Moody's will evaluate the benefits of software tools used to not only combat fraud but also substantiate certain
critical loan information such as borrower income, occupancy, and employment. Moody's takes a positive view
of the use of anti-fraud software tools to identify fraud before closing loans, in conjunction with appropriate processes and practices to proactively respond to the findings.
Property Valuation Policies and Procedures
This subcomponent will also be analyzed in two parts. The first part will be based on our qualitative assessment using the criteria shown in the table below:
•
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Strong
Score = 1
•
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•
ppralsers are c osen In epen ent y an anonymous y rom pro uctlon personne or
Licensed in-house appraisers review all appraisals for acceptability
A single underwriter assesses appraisal in conjunction with the other credit aspects of the file after the inhouse appraiser renders approval for the appraisal
Automated valuation models (AVMs) are independently verified and systematically tested, updated and
modified as necessary
Whenever possible, AVMs or broker price opinions (BPOs) are obtained for reasonableness check pre-closing and for post-closing QC
Appraisers are approved and routinely tested for appropriate licensure and other qualifications
Clear escalation procedures exist for circumstances in which appraisals come in lower than borrower or
lender expectations
8 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
Assessment
Level
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Average
Score = 3
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Weak
Score = 5
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Unacceptable
Score = 6
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Moody's Qualitative Property Valuation Procedures Review:
Selected Criteria
Appraisers are chosen independently and anonymously from production personnel.
A separate appraisal department exists to review appraisals for acceptability.
The appraisal is reviewed primarily within the appraisal unit and handed off to the primary underwriter. The
underwriter generally accepts the findings and performs a cursory review of the appraisal in conjunction
with the credit aspects of the file.
AVMs are utilized as necessary.
AVMs or BPOs are utilized for reasonableness check before ordering second appraisals to reach value;
AVMs are used primarily for QC purposes.
Appraisers are tested for appropriate licensure.
Although escalation procedures exist, the underwriter or loan office has the ability to reorder appraisals in
the case where the initial value comes in lower than borrower or lender expectations ..
Appraisals are ordered by production personnel or brokers who mayor may not be familiar with the
appraiser.
No licensed in-house appraiser to conduct or review appraisals.
In general, AVMs or BPOs are not used to check the reasonableness of the appraisal value pre or post closing.
Appraisers are not routinely tested for appropriate licensure.
Multiple appraisals are ordered when the initial appraisal comes in lower than borrower or lender expectations.
Credit underwriter accepts the appraisal underwriter's findings and generally does not review the appraisal
in conjunction with the other aspects of the file.
Appraisals are ordered by production personnel who routinely do business with certain appraisers.
Numerous missing property valuations.
Use of unlicensed or unqualified appraisers.
No escalation procedure for suspect property valuations.
Multiple appraisals are ordered when the initial appraisal comes in lower than borrower or lender expectations.
Underwriters are unqualified or inexperienced in appraisal review.
The second part of Moody's property valuation procedures review will incorporate the results of independent
third-party loan-level property value reviews conducted for the originator's securitizations for the most relevant,
recent past. Appendix 1 provides Moody's assessment criteria for this review.
The accuracy of property valuation is important as it determines the level of borrower equity in the property
which is highly correlated to default frequency as well as to loss severity to RMBS investors.
The originator's appraiser selection and management process will be examined. In Moody's opinion, it is important the selection of the appraiser be separated from production personnel, to the extent possible, to reduce
the chance of a biased property value. The originator's ability to ensure appropriate and unexpired licensure of
their appraisers is also important. Any bias in selecting an appraiser for factors beyond the quality and accuracy of the appraisal will be viewed very negatively.
Moody's will evaluate the rigor of the appraisal review, the level of tolerance for deviation from appraisal requirements before escalation, the comprehensiveness of desk reviews, the quality of on-staff appraisers, and the
quality of field reviews. Moody's will examine the rebuttal and second review processes employed when the initial appraisal valuations are not consistent. Moody's will take a negative view of an originator that obtains multiple appraisals to achieve a property value it or the borrower believes to be correct. Moody's considers the use
of automated valuation models (AVMs), as well as other valuation tools such as broker price opinions (BPOs), a
best practice to substantiate appraisal values in situations where value is suspect.
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
Moody's Investors Service • 9
Closing/Funding/Post Closing Policy & Procedures
Some of the main factors in our assessment of the originator's closing procedures are in the following table:
Assessment
Level
Strong
Score = 1
Average
Score = 3
Weak
Score = 5
Unacceptable
Score = 6
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MOOdy S Qualitative Glosmg & Funding procedures Review
Selected Criteria
very low HUU-I error rates or overcharges.
APR calculations are virtually always accurate.
Virtually all Good Faith Estimates (GFEs) are correct and delivered to borrowers within three days of application.
Disbursement account tracked and reconciled daily.
Best in class timelines for trailing documents.
Rigorous QC process to ensure correct data flows from LOS to servicing system.
Average HUU-I error rates and overcharges.
APR calculations are generally accurate (95% accurate).
Less than 5% of Good Faith Estimates (GFEs) are incorrect or are delivered to borrowers later than three
days of application.
Disbursement account tracked and reconciled monthly.
Average timelines for trailing documents.
A QC process exists to ensure correct data flows from LOS to servicing system.
High HUU-I error rates and overcharges.
APR calculations are generally inaccurate (more than 5% inaccurate).
More than 5% of Good Faith Estimates (GFEs) are incorrect or are delivered to borrowers later than three
days of application.
Disbursement account is not tracked and reconciled for long periods.
Long timelines for trailing documents.
No QC process to ensure correct data flows from LOS to servicing system.
Numerous IViISSlng HUU-l s.
GFEs are missing, incorrect or delivered to the borrower later than three days of application more than 10%
of the time.
Numerous unreconciled accounts.
Trailing documents not tracked.
Comprehensive closing and funding policies ensure that closing conditions and instructions for a mortgage loan
closing are well-defined and complied with on or before loan settlement. Moody's considers a pre-closing call
to the borrower to confirm the details of the transaction, including fees and other costs, and to re-confirm the
intended occupancy, income and employment status of the borrower as best practice. A confirmation call of
this nature is considered particularly vital for brokered loans. Moody's will review the ability of the originator to
control receipt and disbursement of appropriate funds required by the terms of the closing instructions.
Moody's recognizes that many originators utilize third-party vendors to obtain and clear titles and record new
liens. These services often are engaged to effect loan closings and funds disbursement. Moody's will conduct a
performance review of the originator's third-party settlement service vendor(s) as a part of the originator assessment.
Post closing procedures should result in clear title and lien perfection to the originator. The effectiveness of
post-closing functions including tracking and final receipt of trailing documentation, such as the recorded mortgage or deed of trust, title policy and interim securitization trust assignments, will be reviewed by Moody's. In
addition, quality control pertaining to the accuracy of the data transferred from the loan origination function to
the servicing function will be assessed.
Third Party Origination (TPO) Management
Moody's will attribute significantly more weight to TPO management relative to the other subcomponents of
originator ability when assessing aggregators.
10 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
Assessment
Level
Strong
Score = 1
Average
Score = 3
Weak
Score = 5
Unacceptable
Score = 6
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Moody's Qualitative Third Party ongmator_ (TPO) Management Review:
Selected Criteria
Rigorous process with high standards for broker/correspondent approval.
Robust TPO loan performance monitoring and reporting.
Correspondent business is on a flow or non-delegated underwriting basis.
Proactive use and reaction to anti-fraud software tools.
Pre-closing borrower verification call for broker loans.
Evidence of routine, proactive management of underperforming TPOs.
Standard approval process for brokers and correspondents.
Less than 50% of correspondent business is on a flow or non-delegated underwriting basis; solid sampling
techniques are used to monitor bulk / delegated correspondents.
Use and reaction to anti-fraud software tools.
Pre-closing borrower verification call for some broker loans.
Management of underperforming TPOs results in suspensions for offending brokers/correspondents.
Lax process with high standards lor broKer/correspondent approval.
Correspondent business is 100% based on a delegated and/or bulk basis.
Limited or no use of anti-fraud software tools.
No pre-closing borrower verification call for broker loans.
No or very limited action taken against underperforming TPOs.
NO broKer approval process or tracKing.
No correspondent approval process or tracking.
Unfamiliar with anti-fraud software tools.
Moody's will analyze the controls utilized by an originator to manage loan origination from brokers and correspondents. For bulk sellers and delegated correspondent loan originators, Moody's will expect regular quality
control reviews to be undertaken by the originator consisting of statistically valid random samples in addition to
adverse selection samples. This testing should establish that the TPO's underwriting and appraisal guidelines
are in accordance with the originator's guidelines and policies for such third-party loan origination. Moody's will
endeavor to review a sample of some of the whole loan purchase agreements, with particular focus on the representation and warranties, between the originator and its TPO. Proactive suspension of brokers and correspondents that consistently violate an originator's guidelines or requirements will be viewed positively by
Moody's.
In addition, use of anti-fraud software will be viewed favorably if it is apparent that procedures are in place to act
upon the findings in such a way that high-risk brokers and correspondents are removed from the originator's
approved seller/broker list. Evidence of pre-closing calls to borrowers acquired via brokers to verify income,
employment, occupancy and specific loan terms will be a considered an industry best practice by Moody's.
Credit Risk Management
The table below provides key factors in our assessment of the originator's credit risk management practices.
Assessment
Level
Strong
Score = 1
Average
Score = 3
Weak
Score = 5
Unacceptable
Score = 6
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Moody s Qualitative Credit Risk Management Review
Selected Criteria
Highly sophisticated systems.
Efficient feedback loop to the business/credit policy group; feedback is the primary driver of credit policy/
program parameter changes.
Experienced financial personnel and trained statistical personnel.
Average risk management systems or completely outsourced function.
Feedback loop to the business/credit policy group exists but is not primary driver of credit policy/ product
parameter changes.
Experienced financial and statistical personnel.
NO riSK management system.
Originator learns of loan performance from external sources.
No track record of performance.
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
Moody's Investors Service • 11
Moody's considers the depth and quality of ongoing credit risk management an important aspect of an originator assessment. Originators that proactively undertake in-depth analyses of loan product performance and alter
origination practices in a timely manner to effectively manage loan performance will be viewed positively by
Moody's. Moody's will review the originator's credit risk management platform and staffing. We will seek to
identify the feedback mechanisms in place to effect underwriting guideline changes initiated by the credit risk
management team. A demonstrated ability to quickly react to changing market conditions or correct strategic
errors is viewed favorably by Moody's.
Originator Stability:
The third major component, generally comprising 30% of Moody's originator assessment, will be a review of the
factors that shape the operational and financial stability of an originator. This includes a review of several subcomponents including:
1) financial strength - an originator that has a strong financial foundation is better able to compete for quality
market share and adapt to changing conditions;
2) quality control and audit functions - an originator's ability to control the quality of its loan origination through
adherence to established operational checks and balances;
3) regulatory & legal compliance and oversight - the manner in which an originator establishes systems for and
complies with industry-related legislation;
4) management strength & staff quality - evaluation of the adequacy of personnel at all levels of an originator's
operation; and
5) technology - an assessment of the state of an originator's technology to efficiently operate and control its
loan production
Financial Strength
The table below indicates our criteria for assessing a rated originator's financial stability:
Mooay s FinanCial stability Review:
Selected Criteria
Assessment
level
Strong
Score = 1
Average
Score = 3
Weak
Score = 5
Unacceptable
Score = 6
•
Rated Aa or higher
•
Hated l1aa or higher
•
Hated Gaa2 or higher
•
•
Rated below Caa2
Unable to obtain audited financial reports
For non-rated originators, Moody's will review the originator's funding sources, profitability and capital adequacy. Key financial metrics that Moody's will review include but are not limited to: net income, equity and preferred capital amounts, leverage, and short and long term funding options. In addition, Moody's will evaluate the
types and sustainability of revenues, such as, gain-on-sale, interest income, or other revenue drivers that contribute to originator profitability.
The financial strength and strategic positioning of the originator (or its parent corporation where the originator is
an integrated, operating subsidiary within a holding company structure), has a strong influence on Moody's
view of an originator's stability. An originator with strong financial resources will be able to compete and adapt
to changes in the market as circumstances warrant.
Quality Control and Audit Functions
The table below presents our general criteria for assessing an originator's quality control and audit functions:
12 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
Assessment
Level
Strong
Score = 1
•
•
•
•
•
•
•
Average
Score = 3
Weak
Score = 5
Unacceptable
Score = 6
•
•
•
•
•
•
•
•
•
•
Moody's Quality Control & Audit Review
Selected Criteria
External Audits reveal low level of violations relative to peers.
Line functions actively engage and work with the QC teams.
Internal audit is a robust, formal and independent process reporting directly to senior management and the
board of directors.
Strong feedback loop among management, training, credit policy, QC and the audit team.
Sampling methods are conservative and generally go beyond the minimum requirements to statistically
expose defects.
External audits reveal an average level of violations relative to peers.
Active dialogue between the line functions and the QC teams; initiation of contact generally is made by the
QC team to the line function.
Internal audit is a formal and somewhat independent process reporting to management.
Feedback loop exists among management, training, credit policy, QC and the audit team with varying levels
of intensity.
Sampling methods for internal audiVQC are holistic and robust enough to uncover defects.
External Audits reveal low level of violations.
Weak or no active dialogue between the line functions and the QC teams.
Internal audit is not independent or non-existent.
No feedback loop among management, training, credit policy, QC and the audit team.
Sampling methods do not exist or do not expose defects.
No audits performed.
No QC performed.
Quality control (QC) and internal audits are very important factors in a Moody's originator assessment. Moody's
will analyze how well an originator's quality control processes are integrated into each functional area. Strong
QC processes should include an active dialogue between the line functions and the QC teams. Internal audit
should be a robust, formal process that is independent and has separate reporting lines to senior management
as well as the originator's board of directors.
The process of utilizing the QC and audit findings to develop improved processes, policies and procedures will
be examined along with the effectiveness of the feedback loop among management, training, credit policy, QC
and the audit team.
As part of its assessment of internal controls, Moody's will evaluate the extent to which QC and audits focus on
risks present in individual functions within the origination platform, such as sales and marketing, loan processing, underwriting, appraisal, closing and post-closing. Quality control procedures should include testing adherence to internal procedures as well as regulatory and legal compliance required for each function. The level of
testing and type of sampling, the timely reporting of results and the actions taken to systematically improve processes will be considered in our analysis. Moody's opinion of the value of the quality control process will vary
depending upon the degree to which the findings trigger changes in policies and procedures.
Moody's also will analyze the documented results of external party reviews (on site if necessary). This documentation includes items such as regulatory reviews provided by entities such as the Office of the Comptroller of the
Currency, the Office of Thrift Supervision and entities within the Federal Home Loan Bank system, among others. Moody's also reviews the results of the originator or the parent corporation's compliance with SarbanesOxley.
Regulatory & Legal Compliance & Oversight
This component will be analyzed in two parts. The first part will be based on Moody's qualitative review. Some
the factors we will assess are shown in the table below:
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
Moody's Investors Service • 13
Assessment
level
•
Strong
Score = 1
•
•
•
•
•
•
Average
Score = 3
•
•
•
•
•
•
Weak
Score = 5
Unacceptable
Score = 6
•
•
•
•
•
•
•
Moody s Legal & Regulatory Compliance Review
Selected Criteria
Originator has no past and pending litigation or regulatory actions that would result or have resulted in settlements of more than $250,000.
Legal/regulatory compliance staff primarily drives and manages the loan origination system (LOS) updates.
Regulatory requirements programmed, tested and implemented by compliance staff before a statute's
effective date.
Staff receives extensive compliance training and testing.
LOS contains compliance rules that cannot be circumvented by employees at any level.
On site, expert mortgage and real estate legal counsel utilize outside counsel and manage formal communication process with line managers.
urlglnator nas no past and pending litigation or regulatory actions tnat WOUld result or nave resulted In settlements of more than $1,000,000.
Legal/regulatory compliance staff drives and manages LOS updates in conjunction with the business lines.
Regulatory requirements usually are programmed, tested and implemented by compliance staff before a
statute's effective date but sometimes miss deadlines.
Staff receives periodic compliance training and testing.
LOS contains compliance rules that cannot be circumvented by managers.
Minimal in-house mortgage/ real estate legal counsel with some use of external counsel. Solid but informal
communication process with line managers.
urlglnator as nas numerous past and pending litigation or regulatory actions tnat nave or Will result slgnlTlcant monetary settlements.
LOS does not contain or contains insufficient compliance rules.
Staff can override or work around system rules.
LOS is modified after external audits or litigations reveal deficiency.
No on-site, expert mortgage and real estate legal counsel. Informal, if any, communication between business lines and regulatory compliance staff.
Numerous looming litigation and lor regulatory action tnat Will result In banKruptcy OT tne company.
Not familiar with regulations and statutes pertaining to mortgage lending.
No legal counsel.
The second part of the regulatory and legal compliance review will be based on the loan level results of internal
audits results, regulator audit results and third party pre-securitization sample reviews for the most recent, relevant
period. The assessment criteria for the third party pre-securitization review results can be found in Appendix I.
Non-compliance with federal, state and local laws can result in significant losses. Moody's legal and regulatory
compliance review will seek to gauge the ability of the originator to mitigate legal and regulatory risk by preventing loans that are out of compliance with local, state and federal statutes from being originated and subsequently securitized.
Best practice compliance procedures are those in which lenders have loan origination systems that programmatically ensure, from the time of application through closing, that only allowable fees and rates are charged.
The origination system also should have the capability to automatically produce any required disclosures.
Effective regulatory compliance procedures should be used consistently and not be easily circumvented.
Management Strength and Staff Quality
The table below indicates our general criteria for assessing management, staffing and training:
14 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
Assessment
Level
Strong
Score = 1
•
•
•
•
Average
Score = 3
•
•
•
•
•
Weak
Score = 5
Unacceptable
Score = 6
•
•
•
•
•
•
•
•
•
Mooay s Management strengtn ana stan uuallty HeVlew
Selected Criteria
l:1est In class turnover.
Code of Ethics or similar document is acknowledged and enforced.
Separate and distinct training team.
Best-in-class training for product knowledge, regulatory compliance and special training specifically related
to the employees position.
Strong RFP process with high service level standards for all 3rd party vendors.
Average turnover relative to peers.
Code of Ethic exists and is distributed upon employment.
Small training team, training primarily conducted by line managers.
Periodic training and testing of employees for product knowledge. Regulatory compliance is conducted as
needed.
RFP process exists. Service standards are set for all 3rd party vendors.
High turnover relative to peers.
No Code of Ethics exists.
No separate training team.
Sporadic training by line managers.
No RFP process or low / ambiguous service level standards for 3rd party vendors.
Unable to track turnover rate.
No training provided to staff.
Outsourced functions are not under contract; 3rd party performance is not tracked.
Moody's believes that the originator's investment in personnel at both the managerial and staff levels is critical
to the quality and stability of its operations. Moody's will analyze the sufficiency of staffing at all levels and the
levels of experience and expertise in relation to job functions. Moody's also will review the adequacy of technology support related to origination staff functions. In its assessment of management capabilities, Moody's will
focus on management's ability to respond to market changes, such as its aptitude for efficiently allocating or
reallocating resources during periods of volume growth and contraction. Moody's also will assess management's ability to maintain a consistent level of oversight and controls as product types ebb and flow over time.
To assess management's ability to compensate (by performance measures), retain and motivate staff, Moody's
will examine the annual level of voluntary and involuntary turnover in the originator's operations. Specifically,
Moody's considers high turnover levels or turnover concentrated within particular functions an indication of
potential operational deficiencies. Moody's will review and evaluate the scope and frequency of the training
received by both new hires and existing staff.
To the extent an originator out-sources functions to vendors such as title work for review and clearance and lien
perfection, contract underwriting, information and telecommunication technology, and others, Moody's will
endeavor to review the contractual arrangements, track record, and originator audit processes to affirm such
arrangements are effective and do not impose undue risk on an originator from operational or compliance perspectives.
Technology
The final component of Moody's originator assessment will examine the systems and information technology utilized by the originator. The following table presents some of the key criteria Moody's will use in its assessment:
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
Moody's Investors Service • 15
Assessment
level
•
•
Strong
Score = 1
•
•
•
Average
Score = 3
Weak
Score = 5
Unacceptable
Score = 6
•
•
•
•
•
•
•
•
•
•
•
Moody s Onglnator Technology Review:
Selected Criteria
Minimal ability to manipulate date or circumvent system rules.
Formal change process that
- prioritizes system changes;
- elevates regulatory compliance items;
- thoroughly tests for before major changes are rolled out.
Ability to deliver all required data to Moody's.
Field tested disaster recovery plan.
::;ystem covers most bUSiness and regulatory compliance rUles, nowever, some manual processes are necessary to ensure compliance.
Formal change process that tests for before major changes are rolled out.
With minor exception, has the ability to deliver most of the required data to Moody's.
Written disaster recovery plan.
staff has the ability to manipulate date or circumvent system rules.
No formal change process
Little or no testing before major changes are rolled out.
Cannot deliver key fields required to Moody's.
No disaster recovery plan.
Limited or no system support.
Cannot deliver required data to Moody's for ratings analysis.
Does not recognize the need for a disaster recovery plan.
As part of its assessment of an originator's technological capabilities, Moody's will review the systems utilized
by the originator to control and enhance its processes. Moody's will analyze the ability of the originator to minimize manual data manipulation outside of the loan origination system as an industry best practice. An example
of a strong approach to technology by an originator is the integration of information technology requirements
into business planning such that systems within the originator's operations possess robust functionality to meet
changing loan products, underwriting guidelines and regulatory compliance demands on a timely basis.
Moody's will take a favorable view of originators that establish a process framework to allow for the adequate
testing of system changes well in advance of full implementation. The quality of back-up arrangements also is
an important consideration in the assessment of technology adequacy. The ability of an originator to capture
and transmit key data required by Moody's to rate and monitor RMBS transactions will be considered in our
assessment.
16 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
APPENDIX I
Independent 3rd Party Pre-Securitization Review (TPR) Results7
Moody's assessment of an originator's underwriting policies and procedures, property valuation policies and
procedures and legal and regulatory compliance are comprised of two parts. The first part, the qualitative
review, was presented earlier in this special report. For the second part, Moody's will utilize the aggregated
component review8 results of the TPRs for an originator's past 18 months of securitization to attain more insight
into the originator's ability to comply with its own policies and procedures. 9
During the course of a TPR, the TPR firm will assign an event grade for each loan reviewed. Loans receiving
event grades A and B are deemed to have materially met underwriting guidelines, the ability and willingness of
the borrower to repay the loan has been established, the property value as stated is supported and the loan
complies with all applicable laws and regulations. Event grade ClO indicates that one or more of the factors
mentioned above have been deemed materially deficient by the TPR firm.
Table A reflects the range of event grade C loans an originator may experience for any of the component TPRs
and the associated assessment Moody's will assign based on the TPR findings.
Table A
Assessment Level
Strong
Score = 1
Above Average
Score = 2
Average
Score = 3
Below
Average
Score = 4
Weak
Score = 5
Unacceptable
Score = 6
7
8
9
10
3rd Party Pre-Securitization Loan-level Results:
Non-Prime
Prime
Grade C <= 1.0%
Grade C <= 2.5%
Grade C <=2.5%
Grade C <=5.0%
Grade C <=5.0%
Grade C<=7.5%
Grade C <= 7.5%
Grade C <= 15.0%
Grade C <= 15.0%
Grade C <= 30.0%
Grade C > 15.0
Grade C > 30.0%
Refer to "Moody's Criteria for Evaluatina Independent Third-Party Loan Level Reviews for U.S. Residential Mortgage Backed Securities (RMBS)",
Moody's Structure Finance, 11/24/08
Component TPRs are comprised of a credit review, property valuation review and regulatory compliance review.
When Moody's is unable to obtain sufficient pre-securitization review results for an originator's past securitizations, we may request that a third-party
loan-level review be conducted which is unaffiliated with any particular securitization or find an alternative method.
An event grade D indicates a key document or file was missing during the TPR. Event grade D's will be included as deficient loans for purposes of
Moody's assessment.
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
Moody's Investors Service • 17
EXHIBIT A
Quarterly Reporting Package
1. Mortgage Bankers' Financial Reporting Form (attached)
a.
Moody's requests that Schedule A-060 (Loans Originated for Sale / Held for Investment) should Modified to break down the "Other - Fixed/ARM" further to reflect Alt-A, Subprime and Other.
b. www.efanniemae.com/sflformsdocs/forms/pdflcontractua/obligs /1 002eff1 00 108.pdf
2. Underwriting Guidelines
a.
Initially, Moody's will need a complete set of underwriting guides and guidelines: thereafter, changes
should be communicated quarterly.
b.
Exception loans % for the quarter
3. Audit Results - to be reviewed on site if necessary
a.
Internal OC audits
i.
u/w
ii.
appraisal
iii. title/lien perfection
iv. 4506 reviews
v.
TIL-A compliance
vi. High cost compliance
4.
External Audit Reports- to be reviewed on site if necessary
a.
Any State/Fed/ other oversight reviews
b.
FCRA
c.
HMDA
d. High Cost
e.
5.
Results of any regulatory audit should be reported quarterly
Process Flow Diagrams - Initial baseline than submit changes thereafter
a.
Lead generation
b. Sales/ application taking
c.
Processing
d. Appraisal ordering
6.
e.
Underwriting
f.
Title Clearance
g.
Funding
h.
Lien perfection
Major IT changes
a.
LOS
b.
Delivery systems
c.
Servicing systems (if applicable)
d. Status (commencement, in process, implemented)
7. Training program schedule
a.
Topic
b. Attendees
c.
Facilitator
18 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
ANNEX:
Updated Criteria For Moody's Enhanced Approach To Originator Assessments In U.S. RMBS For
Seasoned Loans 1
Actual payment histories and other updated loan data will provide Moody's with pertinent and more relevant
data needed for credit analysis which cannot otherwise be obtained from defunct originators or by reviewing
outdated practices of originators that are still operating. Therefore, all of the original originator assessment criteria are not applicable for seasoned or non-performing loans. Instead, Moody's will look to obtain the following
data (in addition to our standard data set) in order to gauge the loan quality:
i. Pay history of the loan
1 . Seasoned loans
a. All available history should be provided.
b. A minimum of 12 months pay history is necessary to be eligible for an investment grade rating.
c. Moody's may consider seasoned loans with less than 12 month payment history however the pool will
most likely not be eligible for an investment grade rating. The highest rating achievable will depend on the
payment history available.
d. For option ARMs, in conjunction with the pay string history, the payment type should be provided for
each payment 2
2. Non-Performing Loans
a. Lower of 12 months or life of loan
3. Real Estate Owned Properties ("REO")
a. No pay histories required since no loan exists
ii. Updated property values (required for Seasoned, Non-performing loans and REO)
1. Automated Valuation Model ("AVM"), Broker Price Opinion ("BPO") or full or short form appraisals are
acceptable
2. If AVM model(s) is used Moody's will analyze:
a. frequency and method of updating the database supporting the AVM's valuation results
b. confidence level of output, if provided by the AVM model
c. depth of data by geographical location
3. AVM values should be validated by an independent third party using a random sample of BPOs or full
appraisals3 .
4. Date of updated property value to be provided to Moody's
a. Updated property value should be no older than 120 days upon submission to Moody's
1. Moody's will apply the most recent Moody's Economy.Com ("MEDC") HPI change (at the Metropolitan Statistical Area ("MSA") level) from date of updated property value.
2. If updated property value is greater than 120 days old upon receipt by Moody's or if no updated value
is supplied, Moody's will apply the MEDC index and, at a minimum, an additional 10% reduction in property value provided.
2
3
For purposes of this document a seasoned loan is defined as a currently performing loan that is at least 18 months from its first scheduled payment
date. Generally all loans in the pool must be seasoned to be eligible for the annexed criteria, however, non-performing loans less than 18 months
seasoned that are included in seasoned pools will be eligible for the seasoned loan criteria as well.
Reportable payment types are: "minimum payment", "I/O payment" or "fully amortizing payment".
Refer to "Moody's Criteria for Evaluating Independent Third-Party Loan Level Reviews for U.S. Residential Mortgage Backed Securities (RMBS) Annex" dated 9/22/09.
Moody's Enhanced Approach to Originator Assessments for
U.S. Residential Mortgage Backed Securities (RMBS)**
Moody's Investors Service • 19
iii. Updated FICO scores
1. Single credit repository FICO is acceptable
2. Date of updated FICO
a. R&W that updated FICO is no older than 120 days at time of submission to Moody's
3. If available, the history of FICO scores and corresponding dates should be provided
iv. Updated occupancy
1. Data tape should provide city, state and zipcode of the mailing address for each loan in addition to the
city, state and zip code of the subject property address
2. If the mailing address, city, state and zip code are not provided, all properties will be presumed to be
investor properties
v. Modification information (provided at loan level)
1.
Date of last modification
2.
Number of modifications
3.
Type of modification
4.
DTI at modification
5.
CLTV at time of modification
6.
Pre-mod UPB
7.
Post-mod UPB
8.
Pre-mod monthly P&I
9.
Post-mod monthly P&I
10. Modification Terms (maturity, loan type, rate, etc)
vi. Other Additional Data
1. Any other loan level information available to the sponsor 4 should be provided to Moody's, including but
not limited to
a. Reserves at time of closing
b. Job title and industry of borrower(s)
4
Sponsor refers to the issuer, banker, originator or any party supplying data to Moody's for credit evaluation
Doc 10# SF148785
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herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided "as is"
without warranty of any kind and MOODY'S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of
any such information. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or
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even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any,
constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY,
EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS
GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the
information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it
may consider purchasing, holding or selling.
MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY'S have, prior to
assignment of any rating, agreed to pay to MOODY'S for appraisal and rating services rendered by it fees ranging from $1 ,500 to approximately $2,400,000. Moody's Corporation (MCa) and its wholly-owned credit rating
agency subsidiary, Moody's Investors Service (MIS), also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist
between directors of MCa and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCa of more than 5%, is posted annually on Moody's
website at www.moodys.com under the heading "Shareholder Relations - Corporate Govemance - Director and Shareholder Affiliation Policy."
20 • Moody's Investors Service
Moody's Enhanced Approach to Originator Assessments for U.S.
Residential Mortgage Backed Securities (RMBS)**
Subprime Originator Factors
Date:
Committee Members:
Analysts:
Committee Outcome:
Data
Accredited
Aegis
Ameriquest
BNC
Countrywide
DBASAP
Delta Funding
Encore
EquiFirst Corporation
Fieldstone
First Franklin
fremont
JPMorgan Chase Bank, NA
Long Beach
Nationstar
New Century
Novastar
Option One
People's Choice
Popular
RFC
Saxon
Wells Fargo
WMC
Totals/Average
•
Count Surv E(L)
3
7.4%
2
9.4%
8
10.5%
2
11.9%
14
9.1%
4
11.5%
4
8.2%
3
9.1%
5
10.7%
2
14.0%
11
9.9%
15
12.9%
1
5.7%
6
11.9%
3
7.1%
18
11.1%
6
6.5%
12
10.4%
2
11.1%
3
8.4%
7
10.5%
2
7.3%
7
6.8%
10
12.4%
150
10.2%
Current M3
Meth w/o
Orig
Factors
8.6%
10.0%
9.7%
11.5%
8.7%
11.1%
7.5%
9.5%
9.4%
11.6%
10.4%
11.6%
8.7%
10.4%
7.5%
10.2%
11.0%
10.3%
10.3%
9.6%
8.1%
7.7%
8.3%
12.4%
10.0%
Str
Str Line Line/curre
EL
nt Meth
9.0%
4.0%
12.2%
22.3%
12.3%
27.3%
14.0%
21.7%
10.6%
21.9%
14.2%
28.2%
9.6%
26.7%
9.5%
-0.7%
9.6%
1.9%
16.1%
38.3%
12.1%
16.1%
13.4%
16.0%
6.3%
-27.6%
15.1%
45.1%
6.9%
-7.1%
12.4%
20.9%
11.9%
7.8%
10.5%
2.0%
11.4%
10.8%
9.1%
-4.8%
11.4%
41.0%
7.4%
-4.3%
7.2%
-13.5%
15.8%
27.2%
11.7%
16.95%
Countrywide to be further reviewed for 2007 transactions
Str
Current
Iine/Surv Originator
E(L)
factor
Formula Committeed
21.1%
5.0%
-1.0%
2.5%
29.9%
5.0%
17.3%
17.5%
0.0%
22.3%
22.5%
16.9%
18.0%
10.0%
16.7%
17.5%
16.7%
0.0%
16.9% 12.5%-15%
23.2%
10.0%
23.2%
25.0%
16.6%
0.0%
21.7%
20.0%
3.6%
5.0%
4.3%
5.0%
0.0%
0.0%
-3.1%
-10.4%
15.1%
5.0%
25.0%
25.0%
22.7%
0.0%
11.1 %
10.0%
4.1%
10.0%
11.0%
15.0%
-10.0%
-10.0%
10.1%
-5.0%
27.2%
10.0%
25.0%
25.0%
0.0%
-2.3%
2.5%
-2.1%
11.9%
12.0%
15.9%
15.0%
5.0%
83.2%
5.0%
2.8%
0.7%
5.0%
-3.0%
5.0%
2.5%
10.0%
5.8%
15.0%
8.7%
0.0%
0.2%
0.0%
8.8%
0.0%
25.0%
25.0%
1.6%
0.0%
0.7%
0.0%
-5.0%
0.0%
-8.5%
5.3%
27.5%
12.5%
22.2%
22.5%
14.4%
4.3%
11.20%
Background:
Originator factors to apply to subprime M3 levels are needed to account for risk factors
due to originations quality that are not captured by M3. An analysis of 2006 vintage
subpme pools was performed to quantify what the originator factors should be for most
subprime originators, by origination volume.
Rationale:
2006 vintage transactions were used as the base for developing originator factors, as the
performance as of late has departed materially from historical trends and is expected to be
much more representative of performance in the near future. Only 100% originator
concentration deals were focused upon
To come up with our originator factors, we compared current methodology expected loss
to a Straight-line expected loss, and determined the variance to be due to differences that
would be accounted for by an originator factor.
Current Expected Loss:
Current expected loss was derived by using the "all-in" loss coverage levels from M3 today
and applying an additional adjustment to calibrate for additional risks.
The "all-in" loss coverage levels from M3 today were determined by taking M3 levels, and
applying the following adjustments to account for expanded data adjustments:
Alt-B % of Pool:
Alt-C % of Pool:
Purchase % of Pool:
Stated Doc % of Pool:
Delinquency (entire pool):
Seasoning:
MI benefit:
-15%
-7.5%
25% * 50% (assumes 35% of purchase is FTHB)
40% * 60% (assumes 50% of stated is salaried)
5%
Standard seasoning adjustment
No MI benefit applied
The additional adjustment that was made to the M3 levels is based on the quarter in which
the deal closed. The chart below provides the hits by quarter:
Adjustment
Quarter 1
80.00%
Quarter 2
100.00%
Quarter 3
120.00%
Quarter 4
130.00%
In addition, it was assumed to increase all-in levels by 15% to account for recent increase
in FRM/ARM levels (10% and 5% respectively) and M3 results (5%)
Straight Line Expected Loss:
Straight Line expected losses were determined by forecasting losses by the straight line
method, with the following roll rates and severity for the delinquent loans:
30-590PO
20%
60-890PO
50%
90+ OPO
75%
Severity (no LPMI)
45%
Voluntary CPR rates of 10% were used. No MI benefit was assumed
Straight Line Loss Formula
E(L)
Cum Loss + Pipeline Loss
1 - Adjusted Pool Factor
Adjusted PF
PF - 30+00 - CPR*PF
@FedFRASER