OREANDA-NEWS. Fitch Ratings has affirmed 15 tranches of Dutch MBS XVI B.V., Dutch MBS XVII B.V. and Dutch MBS XVIII B.V. The three transactions are backed by prime Dutch mortgage loans originated by NIBC Bank (BBB-/Stable/F3) and serviced by Stater B.V. (RPS1-) and/or Quion (RPS2+).

A full list of rating actions follows at the end of this rating action commentary.

KEY RATING DRIVERS

Better-than-Average Asset Performance
As of October 2015, the Fitch's Dutch Prime RMBS Index reported loans in arrears by three months or more at 0.7% of the aggregate current portfolio balance. In the same month, late-stage arrears ranged from 0.2% (Dutch MBS XVIII) to 0.5% (Dutch MBS XVI) of the current pool balance. Given the limited pipeline of non-performing mortgages in the pool Fitch expects cumulative foreclosures and losses to remain stable in these transactions in the next 12-24 months.

The positive asset performance is the result of the prime assets' characteristics: high weighted average seasoning of the mortgage portfolios (138 months), lower-than-market average weighted average original loan-to-value ratios (between 74% (Dutch MBS XVII) and 82% (Dutch MBS XVIII)) and debt-to-income ratios (between 27% and 28%).

Limited Effect of Loan Substitutions
Despite that Dutch MBS XVII and Dutch MBS XVIII's documentation allows the issuers to substitute up to 15% of the initial portfolio in the respective portfolios, the credit quality of the pools is protected by stringent conditions that new mortgages have to comply with. Fitch notes that the cumulative purchases to date account for only 3.6% and 1.9% of the initial pool balances of Dutch MBS XVII and XVIII, respectively and the introduction of new loans has had no effect on the credit quality of the pools, as reflected in today's affirmation of the notes.

Payment Interruption Risk Mitigated
The Dutch MBS deals feature non-amortising and fully funded reserve funds accounting for 0.8% (Dutch MBS XVI) and 0.7% (Dutch MBS XVII and XVIII) of the current notes balance. These reserves can be used towards the payment of senior fees, interest and principal payments. The transactions can also rely on amortising liquidity facilities sized at 2% (Dutch MBS XVI) and 1.5% (Dutch MBS XVII and Dutch MBS XVIII) of the outstanding class A to E notes' balance and solely dedicated to cover for interest shortfalls. The cash provided to the structure is sufficient to guarantee the payments of fees and notes' interest (assuming a step-up in the class A margin), for more than two payment dates, under stressed Euribor assumptions.

Insurance Set-off Risk
The intention of insurance policies is that the proceeds of the investments can be used to repay the mortgage loan in full or in part at maturity. In the event that the policy providers are no longer able to meet their obligations, for example as a result of insolvency, borrowers may seek to set-off the claim over the insurance provider against their mortgages, on the basis that the intention is for the loan to be repaid using the proceeds from the policy.

The risk that such set-off could be successfully exercised depends on whether the lender and insurance policy provider are the same legal entity, or whether the mortgage and insurance policies are offered as one product. If they are, Fitch assumes a set-off probability equal to 100%. This figure is reduced to 25% if insurance provider and lender are different institutions or if the mortgage and insurance policy are not a joint product.

Currently, mortgage loans, which have an insurance policy attached, represent between 21% (Dutch MBS XVI) and 24% (Dutch MBS XVII) of the total portfolios. Fitch relied on the information provided at transactions' closing when assessing the weighted average set-off probability as no updated information was available on a loan level basis. The derived set-off exposure is accounted for in the analysis of the available credit enhancement.

Increasing Credit Enhancement
Credit enhancement (CE) is provided by collateralised assets, as well as by the fully funded and non-amortising cash reserves. The combined effect of reserves at target and sequential amortisation has allowed the CE available to the rated notes to build up over time on average by 260 bps for the class A notes, 200 bps for the class B notes, 140 bps for the class C notes, 80 bps for the class D notes and 20 bps for the class E notes. Given the stable asset performance, Fitch expects reserves to remain on target and notes to amortise steadily, resulting in further CE increase.

Fitch believes that the CE levels are sufficient to withstand all the stresses applied during the analysis, as reflected in today's affirmation of the ratings.

RATING SENSITIVITIES

The transactions have material concentration of interest-only loans maturing within a three-year period during the lifetime of the transaction. As per its criteria, Fitch carried out a sensitivity analysis assuming a 50% default probability for these loans. No rating action was deemed necessary as a result of the interest-only loan concentration; nevertheless Fitch will keep monitoring this risk as the transactions continue to amortise.

Deterioration in asset performance may result from macroeconomic factors. A corresponding increase in new foreclosures and the associated pressure on excess spread, reserve fund and liquidity facility beyond Fitch's assumptions could result in negative rating actions.

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.

Prior to the transactions' closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated adverse findings material to the rating analysis. The conclusions of the independent portfolio audit report provided to Fitch in relation to Dutch MBS XVI revealed certain operational weaknesses, primarily (i) a significant number of errors relating to valuation amounts and dates; (ii) a significant number of errors relating to borrower income; and (iii) a few missing files. With respect to Dutch MBS XVII and Dutch MBS XVIII, Fitch believes the sample size, the relevance of the tested fields, and the limited number of material errors suggest that the originator provided an acceptable quality of data.

Prior to the transaction's closing, Fitch conducted a review of a small targeted sample of NIBC's origination files. The main issues were related to the origination through multiple sellers mandated by NIBC, the reliance on Stater and Quion to check the completeness and accuracy of origination documents and that NIBC was unable to provide cumulative default data by vintage.

As a result of the weaknesses identified by the third party assessment and during the file review, Fitch applied a 10% increase to the base default probabilities and, in Dutch MBS XVI, a decrease in the property valuation equal to 2.5%. Such default probability and property valuation adjustments have been considered in today's analysis.

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 NIBC as at 30 September 2015
-Transaction reporting provided by NIBC as at October 2015

REPRESENTATIONS AND WARRANTIES

A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial new issue report (see Dutch MBS XVII B.V. - Appendix, dated 4 October 2012 and Dutch MBS XVIII B.V. - Appendix, dated 5 February 2013 at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.

Fitch has affirmed the following ratings:

Dutch MBS XVI B.V.
Class A2 (ISIN XS0619302135) affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0619303885) affirmed at 'AAAsf'; Outlook Stable
Class C (ISIN XS0619305401) affirmed at 'AA+sf'; Outlook Stable
Class D (ISIN XS0619306805) affirmed at 'Asf'; Outlook Stable

Dutch MBS XVII B.V.
Class A2 (ISIN XS0833089153) affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0833091480) affirmed at 'AA+sf'; Outlook Stable
Class C (ISIN XS0833095986) affirmed at 'A+sf'; Outlook Stable
Class D (ISIN XS0833097099) affirmed at 'BBB+sf'; Outlook Stable
Class E (ISIN XS0833097842) affirmed at 'Bsf'; Outlook Stable

Dutch MBS XVIII B.V.
Class A1 (ISIN XS0871317771) affirmed at 'AAAsf'; Outlook Stable
Class A2 (ISIN XS0871317938) affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0871318829) affirmed at 'AA+sf'; Outlook Stable
Class C (ISIN XS0871319124) affirmed at 'A+sf'; Outlook Stable
Class D (ISIN XS0871319397) affirmed at 'BBBsf'; Outlook Stable
Class E (ISIN XS0871319470) affirmed at 'Bsf'; Outlook Stable