Fitch Completes Canadian Residential Mortgage Loss Model

Fitch Ratings has finalized its new model framework for estimating losses on prime Canadian residential mortgage pools, which allows the firm to better aproach the ratings process for covered bonds and residential mortgage-backed securities (RMBS).

Drivers of the new model include home price projections based on Fitch's proprietary sustainable home price (SHP) model; sustainable loan-to-values (sLTVs) that reflect real changes in house prices; borrower and loan attributes; an accounting-based approach to determine loss severity (LS); and a new two-step stress test.

Fitch says it will review its existing portfolio of Canadian covered bonds under the new criteria and publish research disclosing updated expected losses on the cover pools by the end of June. Fitch does not expect any negative rating impact based on the implementation of the new model to existing covered bonds.


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