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rmances Moodys changed their methodologies to incorporate risk involved in the loans and its attributes. The changes made are increased transparency in the rating, expansion of loan characteristics, delinquencies and its triggers.

The new changes in the year 2007 are;

1. Default assumptions for highly leveraged loans;

2. Risk assumptions for stated income loans and low and no documentation loans;

3. Risk assumptions for newly originated loans;

4. Modified Delinquency triggers;

5. Modified excess spread compression;

6. Increase in loss expectation;

7. Expansion of loan attributes for subprime loans;

8. Increase in loss expectations for early delinquencies;

9. Higher originator specific loss coverage.

1. Default assumptions for highly leveraged loans: Moody's generally included risk involved with borrowers with less or no equity in to loss expectation calculations. At the end of 2006 with the fall of housing boom, there is more risk involved with the borrowers with less or no equity. So moody's kept in mind the changing economic situations and increased it risk assumptions for frequency of default of the loans by 25% and sometimes to 90% based on geography, FICO score, documentation type and occupancy type.

2. Risk assumptions for stated income and low or no documentation loans: loans associated with stated and low or no documentation loans have higher probability of default when compared to its counter partners. Moody's generally differentiate loans with stated income and low and no documentation loans with full documentation loans in the calculation of probability of loss. In the year 2006 the performance of slated income and low and no documentation loans is poor. So moody's had increased 20% to 25% for risk assessment of the loans consisting of slated income and low and no documentation. And this increase in risk assessment percent reflected in loss expectations.

3. Risk assumptions for newly originated loans: the loans that originated in the year 2006 performed very badly and have increased first or early payment default rate. Keeping previous year performance in mid moody's increased loss assessment by 10% for the first payment. And this risk will decrease when borrower starts to pay properly the monthly installments. And once the borrower started to pay monthly payments timely this loss assessment will reduce to 0%.

4. Modified delinquency triggers: delinquency rate is one important parameter in calculating credit performance of the transaction. Delinquency rate decide how much credit enhancement is needed. Moody's generally consider delinquency as loans with 60 days or more past the due. Moody's believe that calculation of credit performance and credit enhancement to be more effective they need to add more triggers in the calculation of delinquency rate. Moody's anticipate more loan modifications than in future in order to reduce losses. The originator should provide more refinancing options to mitigate the losses.

5. Modified excess spread compression: reduction in housing prices and high interest rate and tightening lending standards may affect subprime bor本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。