OREANDA-NEWS. October 07, 2015. Fitch Ratings has upgraded four and affirmed one tranche of EuroMASTR Series 2007-1V plc (EuroMASTR 2007), as follows:

Class A2 (ISIN XS0305763061) affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0305764036) upgraded to 'AAsf' from 'A+sf'; Outlook Stable
Class C (ISIN XS0305766080) upgraded to 'Asf' from 'A-sf'; Outlook Stable
Class D (ISIN XS0305766320) upgraded to 'BBsf' from 'BB-sf'; Outlook Stable
Class E (ISIN XS0305766676) upgraded to 'Bsf' from 'CCCsf'; Outlook Stable

The RMBS transaction is backed by a portfolio of UK non-conforming residential mortgages originated by Victoria Mortgage Funding.

KEY RATING DRIVERS
Sufficient Credit Enhancement (CE)
The current CE spans from 3.7% of the outstanding portfolio balance (class E) to 39.3% (class A2). Fitch notes that funds are transferred weekly from the collection account bank (Barclays, A/Stable/F1) to the transaction account bank (HSBC, AA-/Stable/F1+). Consequently, the agency has sized for commingling exposure, by reducing the current CE by 37bps, therefore accounting for one week of scheduled principal and interest collections. The commingling exposure was sized assuming stressed Libor and CPR assumptions. Despite these additional stresses, in Fitch's view, the available credit protection is sufficient to affirm the senior notes and to upgrade the rest of the structure.

Stable Asset Performance
Late stage arrears (loans in arrears for more than three months) are currently reported at 10.3% of the outstanding asset balance, down 52bps compared to 12 months ago. Over the same period, the outstanding balance of loans with properties taken into possession has increased only marginally (30bps) and stands at 6.2% of the initial portfolio balance.

While late arrears remain above the sector average (9.8%), cumulative balance of loans taken into possession since transaction close is lower than the average of UK non-conforming transactions rated by Fitch, which is reported at 10.5%. Realised losses are higher than the market average (3% of the original asset balance), but remain unchanged since March 2012 at 4.8%.

Fitch notes that the low interest rate environment and housing market recovery have improved borrower affordability and limited losses in the transaction, resulting in performance stabilisation. The main risk factor for EuroMASTR 2007 is its non-conforming nature. Borrowers subject to country court judgments (prior to transaction close) represent 34.6% of the performing and 48.5% of the delinquent portfolio. For these borrowers, Fitch assumes a higher probability of default, in line with its criteria assumptions. The transaction is also exposed to the risk associated with interest-only loans (83% of the collateral pool). The agency performed a sensitivity analysis assuming a higher probability of default where more than 20% of the total portfolio are interest-only loans mature in any three-year period. The analysis showed that the current CE available to the structure is sufficient to withstand such stresses.

Fitch expects the recent asset performance to remain unchanged, as reflected in the Stable Outlook across the structure.

RATING SENSITIVITIES
As 100% of the loans are linked to LIBOR, the expected increase in interest rates will put a strain on borrower affordability, particularly given the weaker profile of the underlying borrowers. If defaults and associated losses increase beyond the agency's stresses, it could result in downgrades of the junior tranches.

Fitch published an exposure draft for UK residential mortgage assumptions on 22 September 2015 (https://www.fitchratings.com/creditdesk/reports/report_frame_render.cfm?rpt_id=871376). The proposed criteria, if adopted, will lead to smaller loss expectations for all types of mortgage portfolios. As a result, Fitch expects all outstanding UK RMBS and covered bond ratings to either be affirmed or upgraded. If the current criteria are updated after considering market feedback, Fitch will review all existing UK RMBS ratings within six months of the new criteria publication.

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 pool and the transaction. Borrower's employment status was not available for this review and Fitch applied the most conservative assumption. 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 pool ahead of the transaction's initial closing. The subsequent performance of the transaction 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.

Overall and together with the assumptions referred to above, 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 Wells Fargo as at September 2015
- Transaction reporting provided by Wells Fargo as at September 2015

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