Smart Borrower Blog

Fitch Rating Findings


Feb 15th, 2008 @ 4:34 PM by Alden Smith


I have been reading with interest Tanya Davis’ posts here on the blog, and begin to look more deeply into things as presented by both her and my research. In a news item today I read about a report that Fitch Ratings put out that gives evidence on what I have figured all along. And that is that the current mortgage mess is more deeply rooted in the mortgage brokers and lenders camp than anywhere else.

We have heard a great deal about the sub prime mess and all about people that were buying homes that were beyond their means to pay for. I have always wondered just how they could get financing in the first place. Fitch makes that much clearer to me.

Fitch did a small study – only 45 case files were scrutinized. Their findings? They report that poor underwriting quality and fraud accounts for about a quarter of the under-performing residential mortgage backed securities. I believe their findings to be accurate, even though sample size was small.

Fitch goes on to say that some faulty mortgages is indeed expected, as in any security that an investor gambles on. They then go on to say that the industry needs to be more closely watched to guarantee that this doesn’t happen again. How? By conducting a more extensive originator review process, for one.

One thing that I found of great interest is that 44% of the files inspected showed that these borrowers had questionable income or low credit ratings. I’d bet my next paycheck that I could walk into any bank in my home town with these credentials, and I would hear the banker laughing all the way to the door. So we can come to the conclusion here that it is not so much “walk-a ways” or people with poor credit to blame, but the originating lenders.

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