(Repeat for additional subscribers)
May 22 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Lowland Mortgage Backed Securities 1 B.V. (Lowland 1), Lowland Mortgage Backed Securities 2 B.V. (Lowland 2) and Lowland Mortgage Backed Securities 3 B.V. (Lowland 3), a series of Dutch RMBS transactions partially backed by the Nationale Hypotheek Garantie (NHG).
The mortgages in the transactions were originated and serviced by SNS Bank N.V. (SNS, BBB+/Negative/F2) and its subsidiaries. NHG loans comprise 36% of the current outstanding pool in Lowland 1 and around 1% in Lowland 2 and 3. A full list of rating actions is at the end of this commentary.
KEY RATING DRIVERS
The affirmations reflect the performance of the underlying assets. As of the April 2014 payment date, three-months plus arrears ranged from 0.91% (Lowland 1) to 0.19% (Lowland 3) compared with Fitch's Dutch prime three-month plus arrears figure of 0.83%. The outstanding balance of loans with properties sold at a loss ranged between 0.25% (Lowland 1) to 0% (Lowland 2 and 3).
The higher arrears in Lowland 1 are driven by the non-NHG portion of the pool. Based on the loan-by-loan data received from SNS, the non-NHG portion of arrears accounted for 81% of total arrears compared with their 64% share of the total pool. To account for the better performance of NHG-loans, in its analysis Fitch reduced the default probabilities of this portion of the portfolio.
There is no swap in place to hedge the interest rate differential between the notes and the mortgage loans in any of the transactions. Instead, the proportions of fixed- and floating-rate notes issued are similar to the proportions of fixed- and floating-rate loans in the pool, thereby providing natural hedging for the interest rate risk, as fixed rate loan proceeds are used to pay down the fixed rate notes and floating rate proceeds are used to pay down the floating rate notes.
Despite minimum weighted average margin and interest rate guarantees designed to protect against a decline in portfolio yield provided by SNS and its subsidiaries, Fitch has not given credit to this commitment. In its analysis, the agency made conservative assumptions on the cash flow proceeds from the portfolio. The analysis showed that the current credit enhancement is sufficient to withstand the respective rating stresses.
Note amortisation in all the deals is sequential. As a the portfolios continue to deleverage, Fitch expects the credit enhancement available to the notes to increase further from levels seen in the latest investor reports.
Deterioration in asset performance may result from economic factors, in particular the increasing effect of unemployment. A corresponding increase in new foreclosures and the associated pressure on excess spread, reserve fund and liquidity facility beyond Fitch's assumptions could result in negative rating action, particularly for junior tranches.
The rating actions are as follows:
Lowland Mortgage Backed Securities 1 B.V.
Class A1 (XS0729888924) affirmed at 'AAAsf'; Outlook Stable
Class A2 (XS0729892108) affirmed at 'AAAsf'; Outlook Stable
Class B (XS0729892959) affirmed at 'AAsf'; Outlook Stable
Class C (XS0729893411) affirmed at 'BBB+sf'; Outlook Stable
Class D (XS0729893767) affirmed at 'BBsf'; Outlook Stable
Lowland Mortgage Backed Securities 2 B.V.
Class A1 (XS0887366135) affirmed at 'AAAsf'; Outlook Stable
Class A2 (XS0887366481) affirmed at 'AAAsf'; Outlook Stable
Class B (XS0887378064) affirmed at 'AAsf'; Outlook Stable
Class C (XS0887378577) affirmed at 'Asf'; Outlook Stable
Class D (XS0887378908) affirmed at 'BBsf'; Outlook Stable
Lowland Mortgage Backed Securities 3 B.V.
Class A1 (XS0988484878) affirmed at 'AAAsf'; Outlook Stable
Class A2 (XS0988486493) affirmed at 'AAAsf'; Outlook Stable
Class B (XS0988487202) affirmed at 'Asf'; Outlook Stable
Class C (XS0988487970) affirmed at 'BBB+sf'; Outlook Stable
Class D (XS0988488606) affirmed at 'BBB-sf'; Outlook Stable