Several societies tipped for a downgrade have reportedly been given a month to prove their credit worthiness in an opportunity to retain their good rating.
Exact is offering to perform credit asset quality assessment on the affected societies’ mortgage books, at cost, to prove that Moody’s has got it wrong.
Alan Cleary, managing director of Exact Mortgage Experts, says: “If the
societies are rated according to their ability to absorb upcoming
losses, it stands to reason they should understand exactly what those
losses will be.
“But Moody’s doesn’t drill down to loan level when doing mortgage credit assessment – they consider future credit worthiness through trend analysis of asset classes rather than through specific, up-to-date credit data by loan. Moody’s has damned a sector by relying too heavily on averages and aggregated risk.”
Moody’s credit assessment methods have been criticised by the mutual
sector as being too high level to reflect the building societies’ credit
Exact says it will assess each loan independently, using up to date credit bureau data on each borrower. The loss severity is then ascertained using real data, specific to each building society’s mortgage book.
Cleary adds: “The mutual sector has traditionally been a
bastion of stability in the UK mortgage market. Given the reputations
at stake, building societies should be given the opportunity to subject
their mortgage books to more detailed granular analysis before being
He believes Exact can offer a more accurate assessment of the particular risk inherent within a specific mortgage portfolio than Moody’s, who have done a broad based approximation of the potential downside.
Cleary says: “Exact is prepared to do asset quality assessment on building society mortgage books at cost to prove this sector is credit worthy and has good prospects for the future.”
Exact is offering societies the opportunity to assess their own
credit risk by running mortgage books through its Asset Quality Assessment.
AQA looks at each loan separately, assessing current loan to value and current credit quality based on up to date bureau information on each borrower. Its credit assessment uses a suite of scorecards adapted according to the type of loan – outputs are then stressed according to current economic trends and specific data supplied by the credit bureau.
Cleary adds: “The mutual sector was up in arms when Moody’s announced its mass downgrade – its reputation for sensible lending and low gearing has been badly damaged by their decision. Exact is giving the building society sector the chance to prove they are credit worthy and regain people’s trust.”