OREANDA-NEWS. March 12, 2015. Fitch Ratings has assigned Precise Mortgage Funding 2015-1 plc's notes final ratings, as follows:

GBP167,500,000 Class A: 'AAAsf', Outlook Stable
GBP11,800,000 Class B: 'AAsf', Outlook Stable
GBP10,200,000 Class C: 'Asf', Outlook Stable
GBP11,700,000 Class D: 'BBBsf', Outlook Stable
GBP4,330,000 Class Z: not rated

Credit enhancement for the class A notes at 18.5% will be provided by the subordination of the class B to class Z notes.

This transaction is a securitisation of a mixed pool of near-prime owner occupied and buy-to-let (BTL) residential mortgages originated by Charter Court Financial Services, trading as Precise Mortgages (Precise or the originator) in the UK (excluding Northern Ireland). 87.1% of the BTL (Tier 1 & Tier 2 products) mortgages have been originated in line with market typical prime BTL underwriting guidelines, though there is limited amount of performance history.

KEY RATING DRIVERS
Prime Underwriting. Limited History
Around 53% of the loans in the portfolio are Tier 1 and Tier 2 BTL loans with characteristics that are aligned with Fitch's expectations of a prime mortgage lender. This includes: no (or very limited) previous adverse credit behaviour, full income verification with the proper checks, full property valuations with audit checks and a clear lending policy that has stringent controls and quality assurance checking.

Precise was able to provide only limited arrears performance history data for around 17 months of performance where there was a sufficiently large loan sample to allow Fitch to conduct adequate analysis. Fitch assigned default probabilities using its non-conforming matrix, but gave a 20% credit to the base default probabilities on account of the strong quality of the loans.

Remaining Pool Near-Prime
The portfolio also includes 47% of BTL and owner-occupied loans that allow some prior adverse credit behaviour from the borrower. Fitch has reviewed the credit and origination policies of Precise and also reviewed historical arrears performance data, which shows performance for around 33 months. In the agency's opinion, the loans are of a higher credit quality than non-conforming loans and although it assigned default probabilities using its non-conforming matrix, Fitch gave a 10% credit on account of the strong quality of the loans.

Unrated Originator and Seller
The originator and seller are not rated entities and as such may have limited resources available to repurchase any mortgages in the event of a breach of the representations and warranties (RW) given to the issuer. Whilst this is a weakness, there are a number of mitigating factor that make the likelihood of a RW breach remote.

Hedged Fixed/Floating Risk
The portfolio consists of around 61% fixed rate loans, with the rated notes paying three-month GBP Libor plus a margin. A balance-guaranteed swap is in place, where the issuer pays fixed and receives three-month GBP Libor.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case expectations, which in turn may result in potential negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the weighted average (WA) foreclosure frequency, along with a 30% decrease in the WA recovery rate, would result in a model-implied downgrade of the class A notes to 'A+sf' from 'AAAsf' and a model-implied downgrade of the class B notes to 'BBB+sf' from 'AAsf'.

More detailed model implied ratings sensitivity can be found in the new issue report which is available at www.fitchratings.com.

Precise provided Fitch with a loan-by-loan data template. All relevant fields were provided in the data tape, with the exception of prior mortgage arrears, where Precise was unable to differentiate between loans having had one to six months of prior arrears and those having had seven to 12 months prior arrears. Performance data on historical static arrears was provided for all loans originated by Precise, but the scope of the data was limited by the small origination volumes to date (around 6,300 owner-occupied and buy-to-let mortgage loans) and the length of available history (the first Precise origination was in early 2010).

Precise has experienced only two sold repossessions to date, due to its limited origination history. As a proxy, Precise provided a data tape in Fitch's template format for 242 sold repossessions that have been serviced by Exact, which included the Precise originated loans. Although the majority of the sample was not for loans originated by Precise, the agency considers the performance of the servicer to be one of the key components in determining sold possession performance. The majority of the loans in the repossession file were from non-prime originators that were originated at the peak of the market during 2006-2008 when in many cases property valuations were optimistic. Despite this, the observed quick sale adjustments were fairly well aligned with Fitch's base criteria assumptions. Given this and that in Fitch's opinion Precise's approach to obtaining property valuations is robust given the fact that they obtain both full valuations and conduct subsequent desktop audit valuations, the agency has applied QSA assumptions as per its standard criteria and not applied any upward adjustments.

During the previous 12 months, Fitch conducted a site visit to Precise's offices and conducted a file review to check the quality of Precise's originations on a larger number of loans than would be assessed during a review of an established prime lender.

Fitch has also reviewed the results of an agreed-upon procedures (AUP) report conducted on the portfolio, which checked the accuracy of the data file provided to Fitch for its rating analysis. The AUP report showed there were no errors in the data sample that had been tested.

It is Fitch's opinion that the data available for the rating analysis was of sufficient quality.

To analyse the CE levels, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses including prepayment speeds and interest rate scenarios. The cash flow tests showed that each class of notes could withstand loan losses at a level corresponding to the related stress scenario without incurring any principal loss or interest shortfall and can retire principal by the legal final maturity.

A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for that asset class is available by accessing the appendix that accompanies the new issue report (see "Precise Mortgage Funding 2015-1 Plc - Appendix", at www.fitchratings.com).