OREANDA-NEWS. Fitch Ratings has affirmed Stichting Waarborgfonds Eigen Woningen's (WEW) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'AAA' with Stable Outlooks and Short-Term Foreign and Local Currency IDRs at 'F1+'.

The rating affirmation reflects Fitch's unchanged expectations regarding extraordinary support for WEW from the Dutch State as well as control from, and its strategic importance to, the State. The Stable Outlook reflects that of the Netherlands' ratings.

KEY RATING DRIVERS

The ratings of WEW, also known as the Homeownership Guarantee Fund, reflect those of its sponsor, the Netherlands (AAA/Stable/F1+). Fitch classifies WEW as credit-linked to the Netherlands under the agency's Rating of Public Sector Entities - Outside the United States' criteria, reflecting very strong expected extraordinary support from the State, in case of need. The credit link with the Netherlands is mostly underpinned by a backstop liquidity agreement between WEW and the State and WEW's tight state control through the Ministry of Internal Affairs and Kingdom Relations and the Ministry of Finance.

Fitch uses a top down credit - linked approach in its criteria for State-dependent public sector entities to equalise WEW's ratings with the sponsor's.

WEW is a not-for-profit foundation and its mandate is to promote home ownership in the Netherlands. The State supports the housing market through the quasi-governmental NHG mortgage guarantee scheme. The government's policy is to ensure the availability of housing and access to home ownership for lower - and middle-income households.

Financial support from the Dutch government is formalised in a backstop agreement, under which the State is responsible for providing interest-free loans in case of need. So far WEW has not had to use the interest-free loans and Fitch believes they are unlikely to be used over the medium term. The backstop agreement can be activated if WEWs capital funds fall below 1.5x average foreclosure losses claimed over the preceding five years. At end-2015 WEW's capital funds were just under 7x the average loss levels and are not expected to fall below 6x over the next six years.

At end-2015, WEW had EUR763m of investments in highly-rated debt securities and EUR143m of cash and cash equivalents. It has no debt of its own but ensures that any residual debt from forced sales of housing properties is settled with individual lenders. As a result, WEW has considerable contingent liabilities through these guarantees, which totalled EUR187bn in 2015.

Although capital funds of EUR899m at end-2015 were low in comparison with contingent liabilities risk, this is mitigated by the low level of executed guarantees to date. The number of foreclosure loss claims fell to 4,557 in 2015 from 4,864 in 2014, and the amount claimed was a modest EUR173m, of which EUR158m was paid out in 2015. Rescission payments have always been covered by WEW's capital funds.

RATING SENSITIVITIES

A downgrade of the Netherlands' sovereign rating would result in a corresponding action on WEW. A downgrade may also result from an adverse change to WEW's legal status and support from the State. The notching difference may be increased on a significant change to the activation trigger of the backstop agreement, demonstrating weakening support from the State.

Although unlikely, a deceleration of the Dutch housing market may have negative impact on the overall economy, and on Dutch public finances. In an extreme scenario, this could hamper the sponsor's ability to support its dependent entities and may lead Fitch to introduce a notching difference between the sovereign's and WEW's ratings.