Fitch unveils updated China residential mortgage rating criteria

May 08, 2024 (MLN): Fitch Ratings has updated its China Residential Mortgage Rating Criteria, replacing the previous version published on March 09, 2023.

The revised China Residential Mortgage Rating Criteria introduces a Macroeconomic Adjustment.

The adjustment can be applied to modify at each rating case, the foreclosure frequencies (FF) for performing loans and market value decline assumptions to account for temporary or unforeseen events expected to result in more significant stress than what is included in the representative pool FF and peak-to-trough home price decline (PTT HPD) assumptions.

In addition, the PTT HPD assumptions at ‘Bsf’ rating case have been increased to reflect the cumulative home price decline observed so far in the current downturn, as well as Fitch’s projection for Chinese home price trends for the foreseeable future.

The PTT HPD assumptions at ‘AAAsf’ remain unchanged, and those at rating cases between ‘Bsf’ and ‘AAAsf’ have been recalibrated via standard interpolation.

The updated criteria report also clarifies terminologies, particularly around references to “base case” and “rating case.”

The revisions to the criteria will not affect any of Fitch’s existing ratings on China RMBS transactions.

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