OREANDA-NEWS. Fitch Ratings has affirmed Dreams Funding Corporation's notes. The transaction is a securitisation of residential mortgage loan receivables, including those backed by residential properties for rent. The receivables were originated by the former Daihyaku Mutual Life Insurance Company. The rating actions are listed below.

JPY0.17bn* Class A2 notes affirmed at 'AAAsf'; Outlook Stable
JPY1.82bn* Class L2 notes affirmed at 'AAAsf'; Outlook Stable
JPY6.50bn* Class L3 notes affirmed at 'AAAsf'; Outlook Stable
JPY0.60bn* Class M2 notes affirmed at 'Asf'; Outlook Stable
* as of 18 January 2016

KEY RATING DRIVERS
The affirmations reflect Fitch's view that available credit enhancement (CE) provides sufficient protection to support the current ratings against potential deterioration in the pool's performance, a decline in excess spread and an increase in basis risk.

The performance of the underlying pool has been in line with the agency's expectation since the previous rating action in January 2015.

Given the low interest rate environment in Japan, Fitch expects the interest rates on the underlying pool to continue to remain at the current low level, which may lead to slight negative carry in the next one to two years. However, the effect on the transaction is likely to be minimal as amounts would be small and covered by the reserve fund.

In addition to its published rating criteria listed below, Fitch's analysis also incorporated Japan-specific assumptions in applying the APAC Residential Mortgage Criteria. These included frequency of foreclosure assumptions based on loan-to-value and debt-to-income ratios as well as loss severities for each underlying mortgage loan.

RATING SENSITIVITIES
An unexpected material increase in delinquencies, defaults and loss severities from defaulted loans in the underlying pool may lead to negative rating actions. The CE levels for the 'AAAsf' rated notes can support defaults at least four times higher than assumed in Fitch's 'AAAsf' stress scenario. The CE levels for the 'Asf' rated notes can support defaults at least five times higher than assumed in Fitch's 'Asf' stress scenario.

Since a substantial portion of the CE is provided by the cash reserve, there is significant exposure to the issuer account bank. Therefore, the ratings of the class M2 notes are unlikely to be upgraded in the foreseeable future.

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 underlying pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the underlying pool information or conducted a review of loan origination files as part of its ongoing monitoring.