OREANDA-NEWS. S&P Global Ratings today said it has raised to 'AAA (sf)' its ratings on Japan Housing Finance Agency's (JHF) series 23 and 25 to 27 fixed-rate residential mortgage-secured pass-through notes (see list below).

The rating actions reflect the following:We assume a foreclosure frequency for the residential mortgage loans currently outstanding of about 4% under our base-case scenarios and about 26%-29% under stress scenarios consistent with our 'AAA' ratings. These rates, which reflect our view of the credit quality of the underlying assets, are prior to applying adjustments for the transactions' convertible pro rata pay structure. We also assume a loss severity rate of about 38%-39% for defaulted loans under our 'AAA' stress scenarios. No losses have occurred in the underlying pools because JHF has thus far withdrawn from the pools any loans with impending losses such as defaulted loans or loans in delinquency for four months. These withdrawals have almost the same effect as prepayments. These four JHF transactions have had high withdrawal rates for defaulted receivables since immediately after the transactions' closings. (Defaulted receivables, as defined under JHF's transactions, include receivables that JHF deems defaulted, delinquent receivables that are four months overdue, receivables with extraordinary amended repayment conditions, and other special receivables.) However, recent withdrawal rates based on an average of the four notes are improving to about 1.5% annually, which is half that of the peak in 2009 to 2010. In addition, the withdrawal rates of these four JHF notes are improving to the same level as that of other JHF notes issued in fiscals 2008 and 2009.We believe the likelihood of a surge in withdrawal rates is limited and these rates will be stable in the future. We attribute this to recent trends in the withdrawal rates of these four transactions and to JHF's withdrawal from the pool of any defaulted loans and delinquent receivables that are four months overdue due to deterioration in the creditworthiness of obligors. Current credit enhancement available for each rated series of notes is sufficient to cover that transaction's various risks such as credit risk under a stress scenario consistent with our 'AAA' rating on the transaction.

These transactions are structured note issuances that JHF issued. A pool of residential mortgage loans that JHF purchased from private-sector financial institutions ultimately secures the notes issued under each transaction. JHF entrusted the loan pool underlying each transaction with a trust as collateral. Because of the structural features of these transactions, we believe the ratings on the notes depend to an extent on the credit quality of JHF. In addition, the transactions lack updated loan-by-loan data in the surveillance period.