Fitch Rates Towd Point Mortgage Funding 2016-Granite 1 PLC 'AAAsf'/Stable
Class A: 'AAAsf', Outlook Stable
Class B: not rated
Class C: not rated
Class D: not rated
Class E: not rated
Class F: not rated
Class G: not rated
Class Z: not rated
The transaction is a pass-through RMBS securitisation set up by Cerberus European Residential Holdings B.V. (CERH), where the majority of the assets have been transferred from the Neptune Rated and Unrated warehouses. Prior to the Granite assets being housed in these two warehouses, the assets were previously securitised in the Granite Master Trust and originated by Northern Rock (NR).
This transaction is the first UK RMBS deal, which has a net weighted average coupon (WAC) cap feature. The net WAC cap means junior note investors will only be paid a coupon at (i) the lower of the stated margin over Libor, and (ii) the net income earned on the assets (calculated using total interest accrued on mortgages whether or not collected), meaning investors may not be paid the stated margin on the notes. The class A notes are not subject to the net WAC cap.
Towd Point Mortgage Funding 2016-Granite 1 PLC is an SPV incorporated in England and Wales.
KEY RATING DRIVERS
Seasoned Portfolio with Adverse Credit
The majority of the loans are 'peak year' (2005-07) vintages with a weighted average (WA) seasoning of 119 months, an indexed WA current loan-to-value ratio (CLTV) of 70.93% and a WA debt-to-income ratio (DTI) of 40.36%. Within the portfolio 3.71% is more than three months in arrears and 14.88% of borrowers have had prior county court junctions (CCJs). This portfolio also includes 'together loans', a product which allowed borrowers to take additional unsecured lending where the maximum LTV could reach 125%.
In December 2015, the Granite mortgages were sold by NRAM plc (NRAM) to CERH. The majority of the assets have since been housed in two separate warehouses out of which they will be randomly selected and sold into the TPMF SPV. Legal title will remain with NRAM and UK Asset Resolution Limited's (UKAR) share sale of NRAM is expected to take place by the end of 1H16. Fitch has reviewed the portfolio acquisition history and deems the risk of assets being clawed-back as remote.
Servicing is currently carried out by Bradford and Bingley plc (B&B, on behalf of NRAM) whose servicing platform is currently undergoing a sale process. On 1 February 2016 Computershare was announced as the preferred bidder for the platform. The sale is expected to complete in summer 2016. Western Mortgage Services (WMS, an entity owned by Capita) is a warm back-up servicer, which Fitch has given credit to in its analysis.
Material increases in the frequency of defaults and loss severity on defaulted receivables producing losses greater than Fitch's base case expectations may result in negative rating action on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'AA-sf' from 'AAAsf'.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information from KPMG LLP. The due diligence focused on carrying out agreed procedures for various data attributes relating to the sample of secured loan assets drawn from the portfolio. Fitch reviewed this information, which indicated errors or missing data related to the property type, amount advanced, valuation date and application forms. The majority of findings were reported when NRAM was placed under the stewardship of UKAR. These findings were considered in this analysis; however, as these results reflected the same findings that were identified in the third party assessment (detailed below) these results were captured in the 5% lender adjustment made for the findings in the third party assessment as set out more fully in the presale report.
For its rating analysis, Fitch was provided with a loan-by-loan data template with all of the key data fields completed, other than prior mortgage arrears. The agency typically calculates the sustainable LTV using the current balance, and the valuation and corresponding date of the valuation provided (which is indexed against the Halifax house price index). The valuation corresponding to the loan amount at the time of the latest advance for the pool was not provided. However, the original valuations and updated valuations carried out in 2008 by NRAM prior to the loans being placed under UKAR's supervision were provided. Therefore Fitch was not able to calculate an accurate WA cumulative LTV (CLTV) on the loans since the current balance in most instances can only be weighed against the original valuation, which artificially inflates the WA CLTV on the pool.
Fitch conducted an enhanced file review on a targeted sample of NR origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices, and the other information provided to the agency about the asset portfolio.
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated errors or missing data mainly related to property type, amount advanced, valuation date and application forms. The majority of findings were reported when NRAM was placed under the stewardship of UKAR. Fitch has applied a 5% lender adjustment to account for these findings.
To determine the quick sale assumption (QSA), Fitch analysed approximately 11,037 sold repossessions provided by NRAM. The observed QSA was slightly above Fitch's standard assumptions and therefore the QSA assumptions were increased to 17.2% from 17% for owner-occupied houses and 25.9% from 25% for owner-occupied flats.
Overall and together with the assumptions referred to above, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis.
-Loan-by-loan data provided by NRAM as at 31 March 2016 cut-off date.
-Transaction documentation provided by NRAM as at end-April 2016
-Tax and legal opinions on the portfolio sale as at end-April 2016
-Loan performance data provided by NRAM as at end-February 2016
-Investor reports for the existing Granite Master Trust as of end-November 2015
-Report on the portfolio of 11,037 sold properties between 2011 and 2015
-Halifax house price index
REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial new issue report (see Towd Point Mortgage Funding 2016 Granite 1 PLC - Appendix, dated 4 April 2016 at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.