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S&P Miscalculated Risk in Postponed Mortgage Bonds, Fitch Says

Standard & Poor’s underestimated the risk of mortgage-backed securities it had planned to rate before the deal was postponed, according to competitor Fitch Ratings.

S&P’s preliminary rankings, which were pulled yesterday after the issuer said it would delay the sale, relied on optimistic home values, Fitch said today in a report. S&P said in a statement yesterday it had asked for more information from issuer Bayview Asset Management LLC after releasing the planned grades as the deal started to be marketed.

Based on the property-price estimates of realty brokers instead of the computer models relied on by S&P, Fitch said the loans exceed current home values by more than 45 percent. That would increase projections for defaults by about 20 percent and the size of losses after foreclosures by 30 percent, Fitch said in its statement.

The $184.9 million transaction, called Bayview Opportunity Master Fund IIIa Trust 2014-9RPL, would be the first sale since the financial crisis of publicly rated securities backed by once-delinquent mortgages, according to Fitch. Similar deals without credit grades have been completed as recently as July 2013, GlobalCapital reported April 28 on its website.

Ed Sweeney, a spokesman for S&P, declined to comment. S&P said in a statement yesterday that Bayview sought to delay the sale after the ratings company requested more information about property valuations and loss severities.

Brian Bomstein, general counsel for Bayview, declined to comment. The Coral Gables, Florida-based mortgage investment and servicing firm is partly owned by affiliates of Blackstone Group LP, according to its website.

Fitch and Moody’s Investors Service have led rating firms criticizing rivals’ grades as the companies seek to rebuild their reputations following the 2008 financial crisis fueled by inflated rankings on mortgage securities.

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