OREANDA-NEWS. Fitch Ratings has upgraded 14 and affirmed 10 notes of the Farringdon and Mansard Mortgages Series. The transactions are two UK non-conforming RMBS series comprising mortgage loans originated by Rooftop Mortgages plc.

KEY RATING DRIVERS

Improving Trend in Performance
Performance in all transactions continues to improve in line with the wider UK non-conforming sector. Loans in arrears by more than three months fell to between 3% (Mansard 2007-2) and 11.4% (Farringdon 1) from between 4.5% (Mansard 2007-2) and 13.4% (Farringdon 1) at the same point last year.

Mansard 2007-1's reserve fund, which was drawn over the last year, has now been replenished to target, as have the reserve funds of other Mansard transactions. In contrast, the reserve funds of Farringdon 1 and 2 continue to replenish towards target, as they have throughout the lives of these transactions.

Build-Up of Credit Enhancement
Farringdon 1 and 2 and Mansard 2007-2 continue to amortise sequentially. The reserve funds in Farringdon 1 and 2 are replenishing towards target and the reserve fund of Mansard 2007-2 cannot amortise further. As a result, there has been a significant increase in credit enhancement (CE) across the structures, which in combination with the robust performance of the transactions, has led to the upgrades across these transactions.

Mansard 2006-1 and 2007-1 have switched back to pro-rata amortisation due to strong performance and the build-up in CE of the mezzanine and junior notes. As the reserve funds in these transactions cannot amortise further, Fitch expects growth in credit enhancement to slow. Fitch's analysis showed that the CE available to the class M1a, M2a and B1a in both Mansard 2006-1 and Mansard 2007-1 and B2a in Mansard 2006-1 were sufficiently high to warrant higher ratings, as reflected in the upgrades.

Reduction in Estimated Recoveries
In its analysis Fitch capped its expectations of sale proceeds, due to historical evidence on loss severities resulting from sold properties. The cumulative weighted average loss severities range between 12.5% (Farringdon 1) to 34% (Mansard 2007-2). As the loans in these portfolios were originated during the peak of the market, between 2005 and 2007, the characteristics of these loans, particularly the high sustainable loan-to-value ratios, have resulted in reduced recovery rates, in line with the reduced sale proceeds experienced in the transactions. As a result, capping the recovery rates in the analysis has had limited impact on the ratings of the notes.

RATING SENSITIVITIES

In Fitch's view, a sudden sharp increase in the Bank of England base rate would put a strain on borrower affordability and potentially lead to a rise in arrears and subsequent defaults, particularly given the fairly high margins (averaging about 3.5%) paid by borrowers. If defaults and associated losses deteriorate beyond the agency's stresses, the junior tranches may be downgraded.