RPT-Fitch affirms Korea First Mortgage No. 7 at 'AAAsf'/stable

Wed Dec 11, 2013 2:59am EST

Dec 11 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has today affirmed all four rated outstanding notes issued by Korea First Mortgage No. 7 Limited (KFM7). The transaction is an RMBS securitisation backed by South Korean residential mortgages originated by Standard Chartered Bank Korea Limited (AA-/Stable/F1+).

USD70.2m Class A-2a affirmed at 'AAAsf'; Outlook Stable

EUR42.9m Class A-2b affirmed at 'AAAsf'; Outlook Stable

USD52m Class B affirmed at 'AAAsf'; Outlook Stable

USD36m Class C affirmed at 'AAAsf'; Outlook

All balances as at 5 November 2013.

KEY RATING DRIVERS

The affirmation reflects the sound collateral performance and the building up of credit enhancement (CE) for each rated class to more than four times of the respective level at closing in May 2007. Fitch expects continued amortisation of the portfolio to further bolster CE, supporting the Stable Outlook.

The agency also expects the stable employment situation in South Korea to support households' mortgage payments despite high household leverage. In Fitch's view, KFM7's low weighted average loan-to-value (LTV) ratio of 40% as of October 2013 provides a strong incentive for borrowers to continue servicing mortgage payments. The absence of interest-only loans also renders the portfolio more resilient to stress.

Loans that are 90+ days past due and 180+ days past due as a percentage of the outstanding portfolio balance remained low at 0.8% and 0.4% respectively as of October 2013.

The portfolio balance has reduced to 22.4% of the initial pool balance as of the cut-off date at end January 2007.

RATING SENSITIVITIES

Fitch considers the likelihood of a downgrade as remote, based on the transaction performance. Assuming the Fitch weighted average 'AAAsf' loss severity doubled to 78% and other factors remain constant, the 'AAAsf' rating on the A-2a, A-2b, B and C notes would face downgrade pressure only if the default rate increased to 71%, 71%, 50% and 36%, respectively. This sensitivity does not consider any further increase in CE as the transaction continues to amortise.

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