• Key Insight: Learn why Fitch is seeking feedback on rating RMBS that use alternative credit scores. 
• Forward Look: On the horizon: Fitch will accept feedback on alternative credit scores until Nov. 16. Overview bullets generated by AI with editorial review.   

Fitch is seeking input on how it should assign ratings when alternative credit scores [ACS] are used to originate loans in residential mortgage-backed securities, giving the mortgage industry a chance to shape criteria for one of their secondary market outlets.

The input request is largely aimed at feedback from RMBS buyers who use ratings to determine what they purchase, but also gives lenders and servicers a chance to share their views of criteria that impact risk management and related costs when securitizing ACS loans.

"You've got a lot of issuers who want to start adopting. The mortgage originators are saying, 'This could be an opportunity,' but not a lot has been done on the investor side," said Kevin Kendra, Fitch's head of North American RMBS, in an interview about alternative credit scores.

The number of originators using the ACS newly allowable in the government-sponsored enterprise market has grown notably, although some of new entrants have only submitted one loan to test the waters, Experian Chief Product Officer Susan Allen said at a recent conference.

Allen advised attendees at IMN's mortgage servicing rights conference to size the ACS being used in the enterprise market, VantageScore 4.0, by doing their own analysis because different entities, from lender-servicers to the GSEs and rating agencies, use it differently.

"If you want to understand how these newer scores are going to perform on duration, on delinquency and default rule rates, test it," she said. "There's an awful lot of data available to you so that you can gather your own opinion."

The GSEs have recently priced loans scored with VS4 and the industry standard FICO classic equitably, even though some rating processes point to performance differences between the two, but credit analysts say their use of the scores is far different from the enterprises'.

ACS as a substitute, complement or choice

Fitch is looking for feedback through Nov. 16 on three ways ACS are likely to be used: as a substitute for the classic FICO standard, a complement to it, and in a situation where lenders have a choice to obtain scores for fewer than all three of the credit bureaus.

The proposed analysis of ACS as a substitute for classic FICO would involve a non-linear mapping to the older metric. FICO classic includes information that goes back through the late 1990s and the early 2000s whereas the ACS's trended data does not.

While ACS may not have the depth of historical data that classic FICO does, they do have other advantages that could make them useful as a complement to the original score, Fitch noted. Fitch would compare default rates, defined by all loans 90-days-plus past due, to do this.

In the case where there is lender choice, Fitch proposes considering factors such as whether the lender is selectively providing data to the rating agency and investors.

Fitch has long allowed up to 10% of a securitized loan pool to lack FICO classic scores, so ACS can currently be used on a standalone basis to the extent they comply with that rule. It assigns a relatively higher probability of default to loans with no scores.

What other rating agencies have done

A recent Aven home-line of credit card securitization contained some standalone use of VantageScore 4.0, according to one company that assigned presale ratings to it, S&P Global.

Morningstar DBRS also issued a presale report on this but did not respond to a request for comment on alternative score use in the transaction. That company announced that it had a process for converting VS4 into FICO score equivalents in April.

KBRA has been researching the VantageScore use in the RMBS market since 2024. Moody's has not responded to inquiries about VantageScore use in the RMBS market.