OREANDA-NEWS. Fitch Ratings is now including reviews of RMBS deal agents (DAs) as part of its U. S. RMBS Master Criteria, with Clayton Holdings LLC (Clayton), one of the largest DAs, to launch the initiative.

Fitch expects the participation of DAs in new RMBS to improve representation and warranty enforcement as well as heighten servicer accountability and effectiveness in mitigating losses on distressed loans. DA responsibilities may include the following:

--Servicer and vendor oversight;

--Investor reporting and reconciliation;

--Enforcement of transaction governing agreements;

--Resolution of representation and warranty breaches; and

--Credit risk management.

Fitch's DA reviews result in a qualitative assessment of 'acceptable' or 'unacceptable'. While DA assessments are not ratings, they will contribute to the analysis of new issue RMBS transactions. Initially, the assessments will be viewed as credit positive in Fitch's analysis of the transaction's representation and warranty framework and may result in a modest benefit to Fitch's expected losses. As more data becomes available in the future on a DA's influence on loss mitigation, Fitch may apply more significant reductions to expected losses.

In conjunction with this criteria release, Fitch has completed a full review of Clayton as a DA and has determined that it is an 'acceptable' entity to perform this function.

The review of Clayton covered its effectiveness and operational capacity to perform the DA role, along with its servicer oversight and portfolio surveillance abilities, and data management and technology strengths. Fitch observed that Clayton has been active over the past several years in regulatory and investor servicing compliance testing; and in pre-and-post close due diligence including credit, compliance, and valuation reviews. Clayton's involvement in several other areas has spanned a longer timeframe including its participation as a mortgage representation and warranty and ABS asset representation reviewer, RMBS oversight, monthly data management and exception loan review and issue remediation.

Clayton is involved with several aspects of the RMBS market along with its parent Radian, which is an important residential mortgage loan insurance provider. As a result, Fitch expects that the potential for conflicts can and will be suitably addressed in the transaction's governing documents. The DA is expected to place the best interests of all certificate holders above that of any single party. As the requirements for a DA become clearer and Clayton becomes more active as a DA in new RMBS, Clayton may adjust its formal policies and procedures in order to effectively manage the potential for conflicts of interest. Fitch expects to continue to monitor Clayton's activities, including DA responsibilities, and any changes made to its policy and procedure framework over time.