OneSavingBank Readies £403.2M Reperforming UK RMBS

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Rochester Mortgages is readying a £403.2 million securitization of U.K. residential mortgages originated at the peak of the U.K. housing crisis, according to DBRS.

Rochester Financing No.2 PLC will issues notes to fund the purchase of loans secured over properties located in England, Wales, Northern Ireland and Scotland. As of October 2015, the portfolio consists of both owner-occupied and buy-to-let mortgage loans originated by DB UK (68.76%), Money Partners Limited (29.34%) and Edeus Mortgage Creators Limited (1.81%). DB UK offered mortgages in the specialist and non-conforming sectors through their network of brokers and packagers and ceased mortgage lending in 2008. MPL offered a range of mortgage products (fixed, variable, and discounted) and flexible secured loans. MPL and Edeus primarily offered mortgages to customers with adverse or non-standard credit.

The weighted-average seasoning of the portfolio is 98.73 months; 97.80% of the loans were originated in 2007 and 2008. The weighted average current loan-to-value ratio, as calculated by DBRS, is 74.18%.

The mortgage portfolio has a relatively high concentration of borrowers who had unsatisfied County Court Judgements at the time of origination (22.69%). And 42% of mortgage loans have been modified since origination, with approximately 10% restructured in the last 24 months. DBRS believes borrowers who have had restructuring in the recent past, particularly in the context of a low interest rate environment, would show a higher propensity to default in the event of future interest rate rises.

Adding to the risk in the deal, over four-fifths (83.18%) of the loans pay only interest for a portion of their terms, most of them owner-occupied properties.

The weighted average coupon generated by the portfolio is 3.29%. Approximately 17.41% of the loans pay the interest rate linked to the Bank of England Base Rate (BBR). The remaining portion of the pool is linked to three-month GBP Libor. The basis risk on account of the BBR mismatch is unhedged. For the purposes of its cash flow analysis, DBRS stressed the BBR rates generated by the assets.

DBRS has assigned an AAA rating to £259 million of class A notes; AA to £33.3 million of class B notes; A to £19 million of class notes; BBB to £16.2 million of class D notes; BB to £8.6 million of class F notes.

In addition to overcollateralization, the notes benefit from a liquidity reserve sized at 2% of the outstanding class A to D note balance. 

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