S&P: Various Rating Actions Taken In U. K. RMBS Transaction Southern Pacific Securities 06-1 Following Review
Today's rating actions follow our credit and cash flow analysis of the transaction, as part of our periodic review of its performance as of the June 2016 payment date.
Since our previous review on June 4, 2014, the transaction's performance has been stable in terms of arrears and net losses (see "Various Rating Actions Taken In U. K. RMBS Transaction Southern Pacific Securities 06-1 Following Review"). Total delinquencies have decreased to 40.2% from 43.8%. The decrease is due to technical reasons, since the servicer (Acenden Ltd.) updated how it reports arrears in the December 2012 investor report to distinguish among amounts outstanding, delinquencies, and other amounts owed. The servicer's definition of other amounts owed includes (among other items), arrears of fees, charges, costs, ground rent, and insurance. Delinquencies now include principal and interest arrears on the mortgages, based on the borrowers' monthly instalments. Amounts outstanding are principal and interest arrears, after the servicer first allocates payments from borrowers to other amounts owed.
Under the transaction documents, the servicer first allocates any arrears payments to other amounts owed, then to interest amounts, and subsequently to principal. From a borrowers' perspective, the servicer first allocates any arrears payments to interest and principal amounts, and secondly to other amounts owed. This difference in the servicer's allocation of payments for the transaction and the borrower results in amounts outstanding being greater than delinquencies. In the past, the servicer based arrears figures on amounts outstanding, while now they are based on delinquencies. Net cumulative principal losses have been stable at about 3.7%, which is above our index for U. K. residential mortgage-backed securities (RMBS) at 3.0%.
Our credit analysis shows a decrease in our current weighted-average foreclosure frequency (WAFF) assumptions and our weighted-average loss severity (WALS) assumptions (except at the 'AAA', 'AA', and 'B' levels) since our previous review. The WAFF shows the weighted-average probability of default of loans in the collateral pool, and the WALS shows the weighted-average loss likely to be experienced on defaulted loans in the collateral pool, as a proportion of the loan amount. The main reason for the decrease in our WAFF assumptions is the greater seasoning and lower arrears.
Our WALS assumptions have decreased primarily thanks to a fall in the current loan-to-value ratio.