In an updated report, Fitch Ratings said that the continued drawing of reserve funds from U.K. nonconforming RMBS is a reflection of the pressure being placed on this sector by current difficult market conditions, according to a release from the rating agency.
"The continued reserve fund draws represent an additional stress for these transactions. However, while some transactions continue to draw, others have seen their reserve funds top-up due to loans reverting to higher margins after initial teaser periods," says Peter Dossett, associate director in Fitch's RMBS performance analytics team.
The new rating agency report details the recent reserve fund draws seen across a number of U.K. nonconforming RMBS deals. It outlines the key drivers behind both the recent reserve fund draws and the rating agency's expectations for future reserve fund draws from these deals. Although a number of the recent draws has been caused by transaction structural features, such as a lack of a fixed-floating rate swap or a basis risk swap, there have also been draws that were caused by interest-stripping mechanisms such as detachable coupons and interest-stripping notes, Fitch said.
The report, called Enough Kept in Reserve? UK Nonconforming Reserve Funds Updatet is an update on a similar report titled Enough Kept in Reserve? UK Non-conforming Reserve Funds" published in May 2008.