Fitch Places 19 Tranches of E-MAC on RWN
The securitisations were issued between 2004 and 2008 and comprise Dutch residential mortgages that were originated predominantly by GMAC.
A full list of rating actions can be found by following the link at the top of this rating action commentary.
KEY RATING DRIVERS
Maturity Concentration Risk
A significant proportion of interest-only loans (between 65% and 83%) in each of the E-MAC NL pool will mature from 2033, indicating high exposure to refinance risk.
In its analysis of the portfolios, Fitch identified that certain inconsistencies have occurred between the criteria-defined sensitivity analysis of portfolios with significant concentrations of interest-only loans maturing within a three-year period and the actual treatment of such loans at the last rating action in August 2015. Prior to this date Fitch did not conduct such sensitivity analysis.
In the latest rating analysis, Fitch has run sensitivities as per its criteria (by applying 50% weighted average foreclosure frequency (WAFF) at all rating levels against the peak rolling concentration and the rating-specific WAFF against the remainder of the pool). The sensitivity analysis identified that 15 tranches rated above 'Asf' exhibit ratings that are substantially different to their current ratings.
These findings, along with refinance risk for an additional four tranches (class A notes of E-MAC NL 2004-I, 2004-II, 2005-I, and 2008-IV), are reflected in the placement of all tranches rated above 'Asf' on Rating Watch Negative. Fitch is awaiting feedback from the servicer regarding the extent of any additional repayment vehicles attached to these mortgage products. Tranches below this rating level have not been placed on Rating Watch Negative as the stress was deemed to too severe for lower-rated notes.
Asset Under-Performance
While overall arrears have declined for the broader Dutch market since January 2015, across the E-MAC NL series, delinquencies have typically either stabilised or worsened (with the exception of E-MAC 2004-I). This underperformance has been persistent over the last three to five years. Coupled with only small increases in credit enhancement, this has led to certain notes being downgraded today.
Default performance of the E-MAC transactions issued up to, and including, 2006-II continues to outperform later issuance. This performance is also reflected in the lower WAFF levels for the older transactions as they have lower original loan to value (OLTV) ratios. However, cumulative defaults for the best performing transaction (E-MAC 2004-I) currently stand at 1.5% of original balance, compared with the Dutch index of 1.2%.
The varying asset performance across the series is also reflected in the performance adjustment factor (PAF) being applied to the transactions, which ranges from 0.7 (E-MAC NL 2004-I) to 1.65 (E-MAC NL 2008-IV) and has been calculated in line with EMEA RMBS Rating Criteria. In the determination of the ratings the agency also accounted for the recent trend in defaults and arrears.
Paydown of Uncollateralised Tranches
In Fitch's analysis, the E notes are paid with releases from the reserve fund. Excess spread is not allocated towards the paydown of the junior tranches. This is because of the build-up of subordinated step-up interest, which ranks senior to class E principal in the waterfall.
Revised recovery estimates of the notes reflect the expected loss of each portfolio and the extent to which there is excess cash in the structure after covering these losses.
Tail Risk
Tail risk tests were conducted in accordance with EMEA RMBS Criteria to assess the adequacy of funds to cover potential losses at the tail of the transaction. There are a number of failures across all the issuance, especially the later vintages. A mitigating factor is that poorer arrears performance leads to a resizing of the reserve fund, as well as a switch to sequential amortisation, therefore providing greater coverage of the tail risk tests.
Fitch will continue to monitor this risk in case the cover is insufficient in the event of a shortfall, to support a senior note rating of 'AAAsf'. Currently, the test results do not have an impact on the rating outcome.
RATING SENSITIVITIES
Further information regarding any mitigation (such as repayment vehicles) of the high concentration of interest-only loans may lead to an affirmation of the tranches on Negative Rating Watch. Conversely a lack of mitigating factors would likely result in a downgrade of the tranches.
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 has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.
Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.
Prior to the transactions' closing, Fitch conducted a review of a small targeted sample of the originator's origination files 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 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 CMIS as at 1 July 2016, 1 April 2016, and 1 May 2016
-Transaction reporting provided by CMIS as at 25 July 2016 and 25 April 2016
-Discussions with CMIS as between 8 July 2016 and 15 August 2016
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