When rating mortgages, credit agencies place a premium on top-notch loan officers in addition to reliable borrowers.
"The institution doesn't have to be experienced, but the people involved with the loan program must be," said Andrew B. Jones, group vice president for Duff & Phelps Credit Rating Co., New York.
This was one of the insights into ratings that was offered by a panel of credit specialists at a conference last week sponsored by Executive Enterprises.
Agencies like Duff & Phelps scrutinize mortgages that are destined for sale in the secondary market. "We serve as the gatekeepers" between lenders and the investing public, Mr. Jones said.
In addition to reviewing numbers, analysts at rating agencies look for a solidly entrenched staff with a history of dealing with borrowers who have less-than-pristine credit records.
Mr. Jones and Kevin P. Duignan, director of mortgage-backed securities at Fitch Investors Service, said the company's standards require tight underwriting and even tougher follow-up.
That's necessary because collection and workout areas often stand between a mortgage pool's triple-A rating and a downgrade, the analysts said.
They added that contact should be fast and frequent when loan payments fall behind, especially when the borrowers already have blemishes on their credit records.
"The further behind a loan is, the more likely it is to tank," Mr. Jones said.
Lenders must be particularly vigilant with loans of B and C quality, which carry more risk than standard mortgages, the analysts said. These obligations are "very different" from A-quality loans made to borrowers with solid track records, Mr. Jones said.
Given the higher frequency of foreclosures with B and C loans, the analysts said, the property's worth rather than the borrower's can often be the primary consideration when reviewing the loan.
When the focus is property value, accurate appraisal is imperative, the analysts said.
Once loans are made, they can become part of a pool of mortgages that are offered for sale in the secondary market.
The more varied the package, the more likely it will weather regional economic downturns, the analysts said.
"Geographic diversity is a big factor," Mr. Duignan said.
