Moody’s changes CDO collateral classification

In an effort to clarify and standardize the categories used in its CDO methodology Moody’s Investors Service is considering changing its system of classifying home-equity collateral backing both cashflow and synthetic CDO deals. From now on, a home-equity loan will either fall under the prime or subprime category based on the borrower’s FICO score. A loan with a FICO score above 650 will be classified as prime while a below 650 FICO score will be classified as subprime. For cashflow CDOs, there had been three categories of analysis.