September 5, 2017 / 10:46 AM / a year ago

Fitch Assigns EDML 2017-I B.V.'s Notes Final Ratings

(The following statement was released by the rating agency) LONDON, September 05 (Fitch) Fitch Ratings has assigned EDML 2017-I B.V.'s notes final ratings as follows: Class A mortgage-backed floating rate notes: 'AAAsf'; Outlook Stable Class B mortgage-backed floating rate notes: 'AAsf'; Outlook Stable Class C mortgage-backed floating rate notes: 'A+sf'; Outlook Stable Class D mortgage-backed floating rate notes: 'A-sf'; Outlook Stable Class E mortgage-backed floating rate notes: 'BBB-sf'; Outlook Stable Class F mortgage-backed floating-rate notes: not rated Class RS excess spread notes: not rated This is the second securitisation of prime Dutch mortgage loans originated by Elan Woninghypotheken B.V., with warehouse funding provided by Goldman Sachs Lending Partners LLC. Credit enhancement (CE) for the class A notes at close is 9.8% and is provided by the subordination of the junior notes and a reserve fund sized at 1.3% of the class A to E note balance at closing. KEY RATING DRIVERS Prime Mortgages; High LTVs: The portfolio is six months seasoned and comprises prime mortgage loans with limited adverse loan and borrower characteristics. It features a lower proportion of interest-only (IO) loans (31.5% of the portfolio) than typically seen in Dutch RMBS, a high weighted average (WA) original loan-to-market value (OLTMV) of 100.1% and temporary, self-employed and other employment types make up 2.1% of the total pool. Loan Portability: 84.9% of borrowers in the pool have the option to 'port' their mortgage balance and terms in case they move home. The ported loan balance can be increased via an additional loan part, subject to full re-underwriting of the loan. Additional loan parts and further advances are limited; but potential increases in OLTMVs as a result of downsizing are not. To address this risk, Fitch has not given any credit to increasing recoveries as a result of portfolio amortisation. This constitutes a variation to criteria. Established Origination Channel: Elan Woninghypotheken B.V. is a new originator in the Dutch market. However, Quion's origination, underwriting and servicing platforms support the lending operations. Further mitigants to the limited performance data include: proxy data; reliance on Quion's underwriting and management; and the robust regulatory regime. To address the limited historical data, Fitch has increased the foreclosure frequency of the portfolio by 10%. Structural Features: The class A to E notes each have an allocated reserve fund (RF), funded through the class RS notes and only the class A's RF can amortise, subject to certain conditions. Interest on the class B to E notes will be deferred once there are outstanding balances on the respective class principal deficiency ledgers. Interest Rate Reset Policy: The mismatch between the fixed rate loans (99.9%) and the floating rate notes is hedged through a swap agreement with ING Bank N.V., but the reset risk remains with the issuer. To address the risk of a potential decline in interest rates at reset, Fitch has tested a range of reset margins, from current levels to 0.95%. The assumed range of rates at reset is below that described in Fitch's criteria and constitutes a criteria variation. VARIATIONS FROM CRITERIA Fitch has been provided with the fixed swap rate per mortgage bucket, which is applicable until a borrower's reset date and has been used to determine the portfolio's WA post swap margin, which currently is at 1.9%. Fitch has taken into account the several pillars of the interest rate reset agreement and tested several scenarios whereby borrowers revert to an all-in fixed rate, maintaining an implicit margin range between 0.95% and 1.9% at their reset date. In low or high interest rate environments, this assumption may constitute a variation from the Criteria Addendum: Netherlands - Residential Mortgage Loss and Cash Flow Assumptions where an assumed compression in fixed rates to 3.0%-4.5% is stated. The transaction documentation envisages a limit on further advances and additional loan parts to a quarterly equivalent of 1.5% (per annum) of the note balance at the start of the note payment date. However, the transaction documentation does not limit the potential risk of borrowers releasing equity from their properties by downsizing and increasing their LTMVs in a scenario where the economic background deteriorates noticeably after sustained property price growth. To address this risk, in its cash flow analysis, Fitch did not account for loan amortisation when projecting recoveries after a loan default. This constitutes a variation from the Criteria Addendum: Netherlands - Residential Mortgage Loss and Cash Flow Assumptions, which states that for annuity, linear, and savings mortgages, Fitch will calculate a recovery rate for each year of the transaction life after closing, projecting each loan's outstanding balance forward using its amortisation profile. RATING SENSITIVITIES Material increases in the frequency of defaults and loss severity on defaulted receivables, producing losses greater than Fitch's base case expectations, may result in negative rating action on the notes. Fitch's analysis revealed that a 15% increase in the WA foreclosure frequency, along with a 15% decrease in the WA recovery rate, would imply a downgrade of the class B notes to 'AA-sf', the class C notes to 'A-sf', the class D notes to 'BBBsf' and the class E notes to 'BB-sf'. More detailed model-implied ratings sensitivity can be found in the new issue report, which is available at USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action DATA ADEQUACY Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. Fitch conducted a review of a small targeted sample of Quion's origination files in March 2017 and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SOURCES OF INFORMATION The information below was used in the analysis. - Loan-by-loan data provided by Quion as at 1 May 2017 - Static vintage defaults, loss figures and dynamic performance data, including comparable proxy data on Elan's and Hypotrust's mortgage loan book; - A portfolio of foreclosed properties on Quion's loan book between 2001 and 2015 MODELS <a href=" "> ResiEMEA. <a href=" ">EMEA Cash Flow Model. REPRESENTATIONS AND WARRANTIES A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research". he appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions, dated 31 May 2016. Contacts: Primary Analyst Rick Van Delft Analyst +44 20 3530 1528 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Sanja Paic, CFA Senior Director +44 20 3530 1282 Committee Chairperson Alessandro Pighi Senior Director +44 20 3530 1794 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Criteria Addendum: Netherlands - Residential Mortgage Assumptions (pub. 11 Nov 2016) here EMEA RMBS Rating Criteria (pub. 29 Nov 2016) here Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Global Structured Finance Rating Criteria (pub. 03 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Related Research EDML 2017-1 B.V. - Appendix here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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