DBRS Weighs in on Rep and Warrant Trends


DBRS late Monday provided its take on recent representation and warranties trends in residential mortgage-backed securities it finds have “the potential to considerably weaken investors’ ability to demand a repurchase.”

Analysts at the company said in a report, “Until recently, RMBS securitizations issued since 2010 have generally had more positive RW features such as specific procedures to put forth a claim, automatic review of breaches and strong enforcement mechanisms including the use of arbitration to settle. However more recently, DBRS has evaluated various RW proposals that represent a meaningful departure from the post crisis RW standard.

“One common theme of many of the new proposals is their attempt to specify a definitive time period for certain RW, typically those related to underwriting and fraud, before the representing parties’ (often the originators) repurchase obligation expires, or sunsets. Other new features proposed include carving out life events when determining an RW violation (proximate cause), or the lack of or reduced backstop by a financially stronger entity than the originators themselves.”

The company said such concerns led it to decline to rate transactions in “two recent instances.” It also noted, “In many cases when evaluating securitizations containing some of the new RW features, DBRS has assigned additional penalties, hence increased loss expectations, to account for such potential risk” such as it did in a recent Credit Suisse deal.

Fitch and Moody’s also have issued reports showing concern about recent rep and warrant trends.

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