NEW YORK--(BUSINESS WIRE)--July 23, 2008--Evaluating the fundamental credit quality of underlying assets is a critical component of structured finance analysis and involves both qualitative and quantitative assessments of loan-level and portfolio level credit risk attributes. A new study published by Fitch Ratings describes key quantitative credit metrics examined across residential mortgages, commercial mortgages, credit cards, student loans and auto loans.
'On a loan-level, structured credit metrics include among others, measures of borrower credit quality, debt repayment capacity and collateral, and on a pool level, measures of portfolio risk such as borrower and sector concentrations,' said Martin Hansen, Senior Director of Fitch Credit Market Research. 'These metrics inform the estimation of expected and unexpected loss on pools of securitized assets as well as ongoing portfolio monitoring.'
While specific credit metrics are not always directly comparable or fungible across asset classes, the study seeks to identify and describe parallel analytical concepts across the different structured finance product types.
The study also contrasts the applicability of certain attributes across product types. For example, metrics pertaining to borrower leverage, such as loan-to-value ratios, are fundamental to the analysis of residential mortgage and commercial mortgage lending but largely irrelevant to unsecured lending in which the borrower does not have equity in an underlying asset, such as credit card receivables. The analysis of borrower concentration risk is essential for less granular portfolios containing large individual exposures, such as commercial mortgages, but less so for more granular pools characterized by diversification of single-borrower risk, such as consumer loans.
'Similar to the universe of corporate issuers where cash flow, leverage, and profitability concepts provide a basis for benchmarking the credit quality of companies in a wide variety of industries, this new study seeks to provide insight into credit concepts that bridge the analysis of structured finance asset types,' said Mariarosa Verde, Managing Director and Head of Fitch Credit Market Research.
The metrics and associated interpretations are synthesized from Fitch's structured finance ratings criteria, published commentary, deal reports, surveillance process, and performance indices. These metrics reflect elements of Fitch's structured finance ratings process and are aggregated within this report to provide market participants with an accessible, transparent, and integrated resource for analyzing fundamental credit quality across structured finance asset classes.
Fitch's study 'Unstructuring Structured Finance' is available on the Fitch Ratings web site at www.fitchratings.com under the following headers:
Market Focus >> Credit Market Research >> Research
Fitch RatingsMartin Hansen, 212-908-9190Mariarosa Verde, 212-908-0791 (New York)Media Relations:Sandro Scenga, 212-908-0278 (New York)
State Keywords: New YorkIndustry Keywords: Source: Fitch Ratings
Authoritative analysis and perspective for every segment of the payments industry
Authoritative analysis and perspective for every segment of the industry
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