The Netherlands is currently the third largest mortgage market in Europe by value and volume, behind the U.K. and Spain, but the record growth experienced over the last three years should see volumes subsiding on the back of a more difficult economic environment.
The Dutch ABS market saw 20 public securitizations in 2004, according to Moody's Investors Service, five less than total 2003 issuance. On the RMBS side, 17 transactions came to market, placing 19.6 billion ($25.6 billion) of Dutch mortgage paper from the 23.4 billion recorded in 2003.
"Dutch RMBS has experienced tremendous growth between January 2001 and June 2004 - 55 transactions, totalling approximately 49.5 billion were launched," said one analyst at a Fitch Ratings seminar on Dutch RMBS, held in London last week. "And at present approximately 10% to 15% of mortgage lending is financed through securitization."
Performance remained strong overall, despite an increase in delinquencies and the recessionary conditions of the market. According to analysts at Fitch, unemployment in Holland has almost doubled since 2003 and the Dutch economy was more severely affected by the recessionary market than its Western European counterparts. "The Dutch housing market showed some signs of recovery after a difficult 2003, during which house prices stabilized and, in some sectors, underwent a slight decline," analysts said. "Underpinned by low mortgage rates and an ongoing shortage in housing supply, house prices rose modestly, in line with inflation."
But despite the difficult market conditions, Dutch RMBS deals experienced low delinquencies and losses compared with other European countries in 2004; 90-plus day delinquencies tend to evolve with enhancement levels ranging from 0.25% to 1.20%. To date, no transaction has had to draw on its reserve fund or any other support mechanism, report Fitch analysts, who last year upgraded 43 Dutch RMBS transaction, and earlier this month affirmed 30 tranches of Dutch RMBS. Moody's added that it plans to upgrade transactions that have outperformed expectations at the beginning of this year.
"Pool performance remained stable last year, but we could expect to see some downside in the Netherlands, in particular from the Delphinus series of RMBS deals," said one market source.
Going forward, a number of legal changes in the pipeline could also alter the scope of mortgage securitization structures. For example, a new law allowing for the perfection of legal title transfers without notifying the individual borrower, but through the registration of a Deed of Assignment with either a Dutch notary or the Dutch tax authorities. The new law, which came into effect last October (see ASR 8/9/04), might have some impact on certain mortgage deeds in an underlying mortgage portfolio.
"The law will affect RMBS transactions but it depends on the type of mortgages that are being securitized - it will make it easier for some types of deals but mortgages that are bank originated will still be subjected to the notification law," said one market source. "As long as that is not fully explained, I doubt we'll see any significant changes to structuring techniques."
The law, however, has previously been implimented by GMAC Nederland in its E-MAC NL series of transactions. The originator used the new Dutch law to notify all the borrowers in the E-MAC NL series of transactions via a silent assignment in the form of the registration of a Deed of Assignment that took take place on Nov. 9, 2004.
"Since the registration of the Deed of Assignment eliminates the need for the notification of borrowers to perfect legal title the current Baa2' notification trigger will no longer be required," explained Moody's analysts. A trigger added to the structure will minimize the potential co-mingling risk in the event of GMAC-RFC Nederland's bankruptcy. If GMAC's rating were to fall below Ba2' the borrowers will be notified of the assignment and the direct debits will be collected by the issuer.
As of press time, sources said that a new law aimed at liberalizing the Dutch social rental market was currently being discussed that could potentially introduce a new aspect to Dutch mortgage pools.
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