OREANDA-NEWS. Fitch Ratings has affirmed 45 tranches of seven Residential Mortgage Securities (RMS) transactions, a series of UK non-conforming UK RMBS transactions. A full list of rating actions is available at www.fitchratings.com or by clicking the link above.

RMS 19 to 23 comprise mortgages originated by Kensington Group plc, while the RMS 25 portfolio was originated by Kensington Mortgage Company Limited, Mortgages PLC, Mortgages 1 Limited, Money Partners Limited and GMAC-RFC. The portfolio of loans in RMS 26 was originated by Kensington Mortgages Company Limited, Money Partners Limited and GMAC-RFC.

KEY RATING DRIVERS
Divergent Asset Performance
The performance of the RMS transactions has improved over the past 12 months, with decreasing late-stage arrears and a decreasing flow of properties taken into possession. The performance of the collateral and the current credit enhancement are the drivers of the affirmations across the transactions.

The volume of loans in late-stage arrears in RMS 19-22 has declined since the last review, with loans in arrears by three-months or more ranging between 17.6% (RMS 21) and 20.7% (RMS 19) of the current outstanding portfolio down from 21.5% (RMS 21) and 26% (RMS 20) a year ago. Nevertheless, these levels remain significantly above Fitch's non-conforming index for three-months plus arrears, which currently stands at 9.9%.

Fitch believes that house price appreciation since origination has contributed towards the relatively low loss severities incurred to date, which do not exceed 30% in any of the transactions.

Loans in arrears by more than three months in RMS 23 are lower than those reported in the earlier transactions at 9.6% of the current outstanding portfolio. However, the transaction reports higher losses on sold properties than RMS 19 to 22. As of May 2014, cumulative losses as a proportion of the original pool balance were 5.2%. Despite the losses incurred to date, Fitch considers the credit enhancement for RMS 23's rated notes to be sufficient for their ratings.

The mortgage pools for RMS 25 and 26 benefit from having fewer borrowers with adverse credit histories than earlier transactions in the series. RMS 25 consists of 100% near-prime loans, while RMS 26 has a large proportion of highly seasoned loans with strong historical performance. Both transactions have reported low arrears and loss levels to date, with late-stage arrears and cumulative realised losses below 4% and 1%, respectively.

Unhedged Basis Risk
The mismatch between the Libor-linked notes, and the BBR- and SVR-linked mortgages in RMS 19 to 26 is unhedged. In its analysis, Fitch has accounted for the unhedged basis risk by reducing the excess spread generated by the BBR- and SVR-linked portions of the portfolios. The credit enhancement is sufficient to withstand the respective rating stresses.

RATING SENSITIVITIES
A modest rise in interest rates could lead to deterioration of the asset portfolio performance, particularly given the weaker profile of the underlying non-conforming borrowers. If defaults and associated losses increase beyond the agency's stresses, the junior tranches may be downgraded.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed 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 were material to this 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 initial closing of RMS 19-25. 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 closing of RMS 26, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Prior to the closing of RMS 26, Fitch conducted a review of a small targeted sample of Kensington Mortgages Company Limited'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 Kensington Mortgages Company Limited and Bank of England as at 1 May 2015.
- Transaction reporting provided by Kensington Mortgages Company Limited as at 15 May 2015

MODELS
The model below was used in the analysis. Click on the link for a description of the model.
- EMEA RMBS Surveillance Model