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For a bank to use the risk weight approaches of the securitization framework, it must have the information specified in 18.32 to 18.34. Otherwise, the bank must assign a 1250% risk weight to any securitization exposure for which it cannot perform the required level of due diligence.
18.32
As a general rule, a bank must, on an ongoing basis, have a comprehensive understanding of the risk characteristics of its individual securitization exposures, whether on- or off-balance sheet, as well as the risk characteristics of the pools underlying its securitization exposures.
18.33
Banks must be able to access performance information on the underlying pools on an ongoing basis in a timely manner. Such information may include, as appropriate: exposure type; percentage of loans 30, 60 and 90 days past due; default rates; prepayment rates; loans in foreclosure; property type; occupancy; average credit score or other measures of credit worthiness; average loan-to- value ratio; and industry and geographical diversification. For resecuritizations, banks should have information not only on the underlying securitization tranches, such as the issuer name and credit quality, but also on the characteristics and performance of the pools underlying the securitization tranches.
18.34
A bank must have a thorough understanding of all structural features of a securitization transaction that would materially impact the performance of the bank’s exposures to the transaction, such as the contractual waterfall and waterfall-related triggers, credit enhancements, liquidity enhancements, market value triggers, and deal-specific definitions of default.
