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Fitch: Delft 2017 Highlights Concentrated RMBS Refinancing Risk
January 18, 2017 / 5:48 PM / 10 months ago

Fitch: Delft 2017 Highlights Concentrated RMBS Refinancing Risk

(The following statement was released by the rating agency) LONDON, January 18 (Fitch) Concentrated refinancing risk in portfolios of high loan-to-value (LTV) ratio interest-only mortgage loans can result in rating caps for RMBS transactions, Fitch Ratings says. An example is the Delft 2017 BV transaction (Delft 2017), where investors could be exposed to the strength and liquidity of the housing and lending markets in a concentrated period near bond maturity. We think this market risk would result in a rating cap at 'Asf'. Delft 2017 is the refinancing of EMF-NL 2008-1 BV, a Dutch non-prime RMBS, currently rated 'BBB+'/Rating Watch Negative by Fitch. Fitch was not asked to rate Delft 2017. As of June 2016, 92% of the loans in the portfolio were due to mature between 2036 and 2038; 80% mature in 2037, just three years prior to the scheduled legal final maturity of Delft 2017 (according to the pre-sale reports of other rating agencies on the transaction). Interest-only maturity risk materialises when borrowers are unable to refinance or sell their property to repay the mortgage loan when due. When a large proportion of a loan portfolio is scheduled to make a balloon repayment in a short period of time then there is concentrated exposure to the strength of the housing and lending market in that period. Borrowers in Delft 2017 may find refinancing and repayment particularly challenging if they have not prepaid or refinanced in the current low interest rate environment. Approximately 25% of the remaining borrowers in the portfolio self-certified their income when they took out their mortgage loans in 2007 and 2008. If and when they decide to refinance their loans, it is likely that they will be subject to less favourable terms, as lenders may view the characteristics of their loans as being riskier than they did at origination. Refinancing options may also be limited, as non-prime lending in the Netherlands has reduced in recent years. Moreover, as a significant proportion of borrowers approach their pension age, loan affordability on an income basis may also be less. In a market downturn of the kind stressed in our higher rating scenarios, the servicer of the Delft 2017 mortgage loans could be forced to implement a high number of loan workouts, or to swiftly liquidate the collateral to repay the notes at maturity. In Fitch's view, this kind of market risk, concentrated as it is towards the end of a transaction's life is excessive and would result in a rating cap at 'Asf'. In practice, loan servicers will most likely try to reduce the interest-only exposure ahead of loan maturity, particularly for non-conforming borrowers. However, Fitch's analysis is predicated on contracted terms and gives little benefit to work-out strategies that depend on borrower cooperation. EMF-NL 2008-1 BV currently has credit enhancement of about 36% for the outstanding class A2 and A3 notes. Notwithstanding the fact that 99% of borrowers currently pay floating rates and reference interest rates are at an all-time low, 11% of the claims are still in arrears by more than 30 days. For more information, please see `Fitch Places 12 Dutch RMBS Tranches on Rating Watch Negative,' available at or by clicking on the link. Contact: Kevin Vanistendael Associate Director, RMBS +44 20 3530 1564 Fitch Ratings Limited 30 North Colonnade London E14 5GN Sanja Paic Senior Director, RMBS +44 20 3530 1282 Mark Brown Senior Analyst, Fitch Wire +44 203 530 1588 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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