Morningstar Credit Ratings Enhances U.S. RMBS Ratings Methodology with Mortgage Insurance Analysis

Feb 11, 2016, 10:11 ET from Morningstar, Inc.

NEW YORK, Feb. 11, 2016 /PRNewswire/ -- Morningstar Credit Ratings, LLC has enhanced its methodology for U.S. residential mortgage-backed securities (RMBS) ratings, incorporating Morningstar's analysis of mortgage insurance in RMBS and improving its clarity. The methodology outlines the process Morningstar applies when rating RMBS transactions. In 2015, Morningstar issued a Request for Comments from market participants about mortgage insurance analysis. After the comment period ended, the company published its enhanced RMBS ratings methodology to allow credit for mortgage insurance.

Brian Grow, managing director of RMBS for Morningstar Credit Ratings, said, "We have received a number of inquiries regarding the use of mortgage insurance in new RMBS transactions, and our enhanced methodology provides a clear framework for how Morningstar approaches mortgage insurance. While mortgage insurance does not necessarily affect a borrower's probability of default, it may decrease loss severities. Our methodology now gives credit to mortgage insurance, in some cases up to the AAA ratings level."

Morningstar has also revised its U.S. Residential Mortgage Loan Representations and Warranties methodology, U.S. Nonagency RMBS Resecuritization methodology, Single-Family Rental Securitization Ratings Criteria, and RMBS Servicer Advance Receivables Ratings Criteria. Highlights of the updates:

  • The methodology for U.S. Residential Mortgage Loan Representations and Warranties now reflects areas where Morningstar may exercise discretion in its analytical approach.
  • The key revision in the U.S. Nonagency RMBS Resecuritization methodology reflects observations from recent transactions, emphasizing not only model results but also actual performance data for the assignment of ratings. Morningstar may also rely on an issuer's cash flow model.
  • The Single-Family Rental Securitization Ratings Criteria clarifies that while the same framework is used for both new-issue and surveillance ratings, the latter will depend more on actual performance data instead of assumptions made at new issuance. The updated criteria also clarifies that for multiborrower transactions, Morningstar reviews the originators and their underwriting guidelines rather than property managers. Multifamily properties are included in multiborrower single-family rental transactions; for certain multifamily properties, Morningstar may only use the capitalization rate valuation method. Because some loans may default in multiborrower transactions, Morningstar's cash flow analysis may rely on servicer advance payments for a period of time before liquidation.
  • The RMBS Servicer Advance Receivables Ratings Criteria now clarifies where Morningstar may exercise discretion in its analytical approach including its review of legal opinions.

Morningstar has 20 letter rating categories ranging from AAA to D including plus and minus gradations to express its opinion about the credit quality of an RMBS based on Morningstar's policies and procedures. Morningstar's RMBS ratings supplement the company's existing ratings of commercial mortgage-backed securities, single-family rental securitizations, and asset-backed securities.

Morningstar's RMBS ratings methodology is available under the Ratings/Surveillance section of its website at

About Morningstar Credit Ratings, LLC and Morningstar, Inc.

Morningstar Credit Ratings, LLC is a Nationally Recognized Statistical Rating Organization (NRSRO) offering a wide array of services including new-issue ratings and analysis, operational risk assessments, surveillance services, data, and technology solutions.

Morningstar Credit Ratings, LLC is a subsidiary of Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research in North America, Europe, Australia, and Asia.

Morningstar, Inc. offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 17 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $170 billion in assets under advisement and management as of Sept. 30, 2015. The company has operations in 27 countries. Morningstar, Inc. is not an NRSRO and does not issue NRSRO credit ratings.

©2016 Morningstar, Inc. All Rights Reserved.


Media Contacts:  Michelle Weiss, +1 267 960-6014 or Vanessa Sussman, +1 646 560-4541 or


SOURCE Morningstar, Inc.