OREANDA-NEWS. August 03, 2015. 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 its Short-term foreign and local currency IDRs at 'F1+'.

The ratings 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.

KEY RATING DRIVERS
The ratings of WEW, also known as the Homeownership Guarantee Fund, reflect those of its sponsor, the Netherlands (AAA/Stable/F1+). The credit link with the Netherlands reflects the support WEW receives from the state through a backstop liquidity agreement, its links with the state, its status as a foundation and its tight control under 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's mandate is to promote home ownership in Holland. The state supports the housing market in the Netherlands 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 the average level of foreclosure losses claimed over the preceding five years. WEW's capital funds are currently 7x the average loss level and are not expected to fall below 3.5x over the next six years.

At end-2014, WEW had EUR704m of investments in highly-rated debt securities and EUR120m 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 EUR176bn in 2014.

Although capital funds of EUR818m at end-2014 were low in comparison to potential contingent liabilities risk, this is mitigated by the low level of executed guarantees to date. Despite the number of foreclosure loss claims rising to 4,864 in 2014 from 4,580 in 2013, the amount claimed was a modest EUR211m, of which EUR168m was paid out in 2014. 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 if there is a significant change to the activation trigger of the backstop agreement demonstrating weakening support from the state.

Although unlikely, another 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.