Fitch Assigns Hawksmoor Mortgages 2016-1 plc Expected Rating
Class A: 'AAA(EXP)sf', Outlook Stable
Class B: Not Rated
Class C: Not Rated
Class D: Not Rated
Class E: Not Rated
Class F: Not Rated
Class X: Not Rated
Class Z1: Not Rated
Class Z2: Not Rated
The final ratings are subject to the receipt of final documents conforming to information already received.
This transaction will be a securitisation of non-conforming residential mortgages, originated or previously acquired by GE Money Home Lending (GE). The ratings are based on Fitch's assessment of the underlying collateral, available credit enhancement (CE), GE's origination and underwriting procedures, and the transaction's financial and legal structure.
KEY RATING DRIVERS
Performing Seasoned Loans
GE was a non-conforming lender that originated loans across the credit spectrum. The loans in this pool are well seasoned; but they are negatively selected from GE's overall portfolio of performing loans. The positively selected loans were previously sold and subsequently securitised in the Trinity Square 2015-1 and Trinity Square 2016-1 transactions.
Purchased Portfolio
The portfolio is a purchased portfolio acquired by Junglinster SARL from GE in December 2015. For purchased portfolios that are on-sold to investors, the interest between sellers and noteholders may be misaligned. Further, the seller is unrated and may have limited resources to repurchase mortgages if there is a breach of the representations and warranties. These risks are mitigated by the nine years of loan seasoning, the extended file review performed by Fitch and the due diligence performed as part of the purchase.
Unhedged Base Rate Loans
The majority of the pool pays interest at a rate linked to the Barclays Bank Base Rate (BBBR), whereas the notes pay a coupon linked to Libor. If these interest rates were to diverge significantly, the interest amounts payable by the issuer may exceed those amounts received. Based on its past performance, Fitch has modelled the BBBR loans using its Bank of England Base Rate basis stress assumptions. In all rating scenarios, Fitch has assumed that the BBBR is floored at zero
RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base case expectations may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the weighted average (WA) foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'Asf' from 'AAAsf'.
More detailed model implied ratings sensitivity can be found in the presale report which is available at www. fitchratings. com.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information from Deloitte LLP. The due diligence focused on the presence of key documents in the loan file and data integrity. Fitch reviewed this information which indicated no adverse findings material to the rating analysis.
DATA ADEQUACY
Kensington Mortgage Company Limited (KMC) provided Fitch with a loan-by-loan data template; all relevant fields were provided in the data tape. In a small number of cases the adverse credit fields were not able to be populated, Fitch assumed that these borrowers had the attribute in question. Performance data on historic static arrears were provided for all loans originated by GE, but the volume of the data post 2008 was limited due to low origination levels.
The data originally provided to KMC by GE contained some missing items for the CCJ field which were assumed to be zero. An audit of the CCJ field was completed by a third party auditor who considered a sample of 460 loans, a summary of which was provided to Fitch. Fitch made no adjustment in its analysis as a result of the audit.
Fitch has been provided with data for 3,675 sold repossessions of loans originated by GE. 3,156 observations contained no errors and were used in the analysis. When assessing the relevant assumptions to apply the Quick Sale Adjustment (QSA), Fitch considers the robustness of the initial valuations as the key driver, together with the special servicing arrangements in place. Fitch tested the realised QSA derived from the data provided against its criteria assumptions and found the realised adjustment to be broadly in line with the criteria.
In its analysis, Fitch applied its criteria assumptions for QSA in all BTL cases without any adjustment and in owner occupied cases except houses and bungalows. In the latter two instances, a higher QSA of 19.1% (17.0% in criteria) and 22.8% (17.0% in criteria) were applied respectively. The applied QSA reflected that observed in the data provided. Fitch believes that the dataset provided was of a sufficient size and that the QSA benchmarking is robust and appropriate for the analysis of the pool.
During July 2015, Fitch conducted a site visit to GE's offices and conducted a file review to check the quality of GE's originations; no material issues were found. Fitch reviewed the results of a draft AUP conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis. Fitch expects to receive the final AUP report before assigning final ratings.
Overall and together with the assumptions referred to above, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
To analyse the credit enhancement levels, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses, including prepayment speeds and interest rate scenarios.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by KMC dated 15 June 2016
- Loan enforcement details provided by KMC dated 31 March 2016
- Loan performance data provided by KMC dated 31 March 2016 and 15 June 2016
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