TEXT-Fitch affirms Vela Mortgages transactions
Nov 13 - Fitch Ratings has affirmed Vela Mortgages S.r.l. - Series 1 (VM1) and Vela Mortgages S.r.l. - Series 2 (VM2), as follows: Vela Mortgages S.r.l. - Series 1: Class A (ISIN IT0004364185): affirmed at 'AAAsf'; Outlook Negative Class B (ISIN IT0004364193): affirmed at 'AAsf'; Outlook Negative Class C (ISIN IT0004364201): affirmed at 'BBB-sf'; Outlook Negative Vela Mortgages S.r.l. - Series 2: Class A (ISIN IT0004550429): affirmed at 'AAAsf'; Outlook Negative Class B (ISIN IT0004550593): affirmed at 'AAsf'; Outlook Stable Class C (ISIN IT0004550452): affirmed at 'BBB+sf'; Outlook Stable The affirmations reflect the stable performance of the underlying assets and Fitch's view of the credit support available to the notes, which is expected to remain sufficient to withstand the respective rating stresses. The Outlook on the most senior notes reflects the Outlook on Italy's Long-Term Issuer Default Rating ('A-'/Negative/'F2'). The two transactions comprise residential mortgage loans originated and serviced by Banca Nazionale del Lavoro S.p.A. ('A'/'F1'/Negative). The pools include semi-annual paying loans, as well as fixed-instalment loans which feature either variable maturity and/or a step-up in the fixed amount ("Mutuo Affitto" and "Mutuo Affitto Piu'"). The exposure to these loans varies across the two transactions, with semi-annual loans making up 22.7% of VM1 and 4% of VM2, while fixed-instalment loans stood at 49.5% and 6.9% for VM1 and VM2, respectively, in October 2012. As such loans are deemed more risky, Fitch applied more conservative default probability assumptions in its analysis of these pools. Both transactions feature a principal deficiency ledger (PDL) mechanism whereby any defaulted loan, as well as any principal instalment unpaid under any delinquent loan are recorded and cleared using available excess revenue. The performance of both portfolios has stabilised over the past year. The stabilisation in arrears levels for VM1 was driven by the high percentage of variable rate loans in the pool (around 60%), with the underlying borrowers benefiting from the current low interest environment, which has improved borrower affordability. VM2 has historically outperformed the more seasoned transaction. In Fitch's view, the better performance of VM2 has been driven by the lower exposure to semi-annual and fixed instalment loans. In Fitch's opinion, an additional reason for the stabilised performances are the originator buy-backs of underperforming loans, which were aimed at improving the quality of the underlying assets (approximately 9.5% of the initial pool balance in VM1 versus 16.5% in VM2). These factors have led to a lower volume of loans being cleared through the PDLs of the two transactions. As a result, VM1 managed to top-up its reserve fund to EUR90m as of the October 2012 payment date from EUR81m a year ago. The reserve fund is presently at 80% of the EUR112.7m target amount. In Fitch's view, the further replenishment of the reserve fund will depend on borrowers' ability to meet their payments as well as the future inflow of recoveries on defaulted loans. Given the high dependency of excess revenue on recoveries and the uncertainty over the timing of their receipts, the Outlooks on VM1's mezzanine and junior tranches remain Negative. VM2's reserve fund is at 96% of its target amount (EUR53.5m). The draw was driven by a higher volume of defaulted loans, which were cleared through the PDL. Fitch believes that future draws will remain limited, and not have a major impact on the credit enhancement of the rated notes. As a result the agency believes that the current level of credit support available to the notes remains sufficient to withstand the respective rating stresses, leading to an affirmation of the notes with Stable Outlooks. Loans in arrears by more than three months stood at 1.3% and 1.4% of the current collateral portfolios as of the October 2012 IPD for VM1 and VM2, respectively. Although the last two collection periods have shown a slight upward trend, especially in the late stage of arrears (greater than 12 months), Fitch does not expect these arrears to translate into a sudden deterioration in asset performance, as reflected in the affirmations. As the performance of VM1's pool has historically been worse, Fitch remains more cautious about future performance, which is reflected in the Negative Outlooks on the class B and C notes.
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