© Reuters. Fitch Affirms 15 National RMBS Tranches; Outlook Stable
(The following statement was released by the rating agency) Fitch Ratings-Sydney-January 16: Fitch Ratings has affirmed 15 tranches from seven National RMBS Trust transactions. The transactions are securitisations of first-ranking Australian residential mortgages. A full list of rating actions follows at the end of this rating action commentary. National RMBS Trust 2011-1, National RMBS Trust 2012-1 and National RMBS Trust 2012-2 were originated by Advantedge Financial Services Pty Limited and Challenger Mortgage Management Pty Limited, while National RMBS Trust 2011-2, National RMBS Trust 2015-1, National RMBS Trust 2015-2 and National RMBS Trust 2018-1 were originated by National Australia Bank Limited (NAB, AA-/Stable/F1+).
KEY RATING DRIVERS Operational Risk: NAB is a major lender headquartered in Melbourne. Fitch undertook an onsite operational review and found that the operations of the originator and servicer were comparable with market standards and that there were no material changes that may affect NAB’s ability to undertake administration and collection activities. NAB’s collection timelines, policies and procedures are in line with those of other conforming lenders in Australia, as evident from the historical performance of NAB’s transactions. Asset Analysis: The asset model was not re-run for the transactions, with the exception of 2015-1, in accordance with Fitch’s criteria, as the notes are rated at the highest possible level, asset composition and performance have not deteriorated materially and there have been no material changes to asset assumptions since the last asset model analysis. Of the transactions for which the asset model was not re-run, three had 30+ day arrears (excluding loans in hardship) above Fitch’s 3Q18 Dinkum RMBS Index of 1.04% as at end-November 2018, with the highest being 1.6% and the lowest 0.7%. We expect arrears as a percentage for longer seasoned transactions to increase due to the small pool size. Arrears by balance remain stable. Performance remains strong, with low loss levels ranging from 0.0% to 0.4% across the trusts. Lenders’ mortgage insurance (LMI) is present in all trusts, with coverage ranging between 13.3% to 27.0% except for 2011-1, which benefits from 61.1% coverage. At the trust level, LMI has covered between 75.5% to 100.0% of all submitted claims. For 2015-1, the ‘AAAsf’ weighted-average (WA) foreclosure frequency of 7.4% was driven by the WA unindexed loan/value ratio (LVR) of 51.3%, interest-only borrowers of 12.6% and, under Fitch’s methodology, investment loans of 31.4%. The ‘AAAsf’ LMI-dependent WA recovery rate of 73.8% was driven by the WA indexed scheduled LVR of 48.8% and ‘AAAsf’ WA market value decline of 57.3%. The transaction’s 30+ day arrears were 1.9%, above Fitch’s 3Q18 Dinkum index due to the diminishing portfolio balance and rise in 90+ day arrears to 1.0%. The transaction has met its subordination conditions and is paying down pro rata; 14.3% of the portfolio benefits from LMI provided by Genworth Financial (NYSE:) Mortgage Insurance Pty Limited (IFS: A+/Stable) and QBE Lenders’ Mortgage Insurance Limited (IFS: AA-/Stable). The initial revolving period of 2012-1 was five years, but this has been extended for a further five years, of which 3.7 years remain. The revolving period of 2015-2 is 10 years, of which 7.3 years remain. Fitch believes the risks associated with the long revolving periods are commensurate with the ratings because NAB has a stable product history and eligibility criteria, including portfolio parameters in 2015-2 that maintain portfolio characteristics during the revolving period. Liability Analysis: Cash flow analysis has not been performed as cash flow distributions have been within Fitch’s expectations and there have been no material changes to cash flow assumptions since the last cash flow analysis. Macroeconomic Factors: Fitch forecasts stable mortgage performance supported by sustained economic growth in Australia, with GDP forecast to increase by 2.8% in 2019. Steady labour markets and low interest rates further support the outlook attributed to the rated notes. RATING SENSITIVITIES Fitch does not expect the ratings to be affected by any foreseeable change in performance. The prospect of a downgrade is remote, given the level of subordination to all rated notes and pool performance to date. Sensitivities from the asset model for 2015-1 are: Rating sensitivity to increased defaults: Notes: A/B Rating: AAAsf/AA+sf Increase in defaults by 15%: AAAsf/AA+sf Increase in defaults by 30%: AAAsf/AA+sf Rating sensitivities to decreased recoveries: Notes: A/B Rating: AAAsf/AA+sf Reduce recoveries by 15%: AAAsf/AA+sf Reduce recoveries by 30%: AAAsf/AA+sf Rating sensitivity to multiple factors: Notes: A/B Rating: AAAsf/AA+sf Increase in defaults, reduce recoveries by 15%: AAAsf/AA+sf Increase in defaults, reduce recoveries by 30%: AAAsf/A+sf The class B notes of 2011-2 and 2015-1 are constrained at their current ratings as they have failed Fitch’s ‘AAAsf’ tail-risk test. The ratings are independent of downgrades in the LMI providers’ ratings, with the exception of the 2015-1 class B note. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10