Europe is gearing up for a revival of its RMBS sector after taking a break in August. The latest deal slated to make the rounds next month comes from Santander U.K.'s Fosse master trust structure.
Santander U.K. has mandated Barclays, JPMorgan and Santander Global Banking & Markets as lead managers for its forthcoming FOSSM 2010-4 transaction. This prime U.K. RMBS is
expected to be launched and priced across a combination of British pound- and euro denominated classes, subject to market conditions, in the first week of September.
Royal Bank of Scotland (RBS) analysts said that September will potentially be a relatively heavy month for primary RMBS supply. These deals will also give the market pricing direction.
"Currently, benchmark U.K. prime triple-A RMBS trade around 120 basis points to 140 basis points, while prime senior Dutch mortgage paper trades in the region of 100 basis points to 130 basis points (in both cases current coupon recent new issues trade at the tighter end of these ranges)," RBS analysts said.
U.K. RMBS, according to RBS analysts, will likely experience a window of stable if not improving mortgage performance given the impact of low rates and the recovery in house values over the past year.
Case in point, four U.K. mortgage master trusts (Mound, Permanent, Arkle and Pendeford) released investor reports last week, which generally showed very modest increases in late-stage arrears but with improved loss rates typically.
Prepayments remain range-bound, with Permanent and Arkle experiencing a moderate uptick in CPRs for the month.
Better affordability and housing market fundamentals have also had a powerful impact on U.K. nonprime RMBS in recent months. Portfolio performance – measured in terms of arrears, defaults and loss levels – has improved noticeably in many cases.
However, borrowers remain exposed to rate shocks, as well as the potential for further economic deterioration.
"We see risks that this ‘window’ of stabilization is tested by higher mortgage rates and/or renewed household economic weakness," RBS analysts said. "Any impact on nonprime pool performance may be exaggerated to the extent lender forbearance strategies have artificially suppressed the reported frequency of borrower non-payments, in our view."