OREANDA-NEWS. Fitch Ratings has affirmed 15 tranches of Lowland Mortgage Backed Securities 1 B.V. (Lowland 1), Lowland Mortgage Backed Securities 2 B.V. (Lowland 2) and Lowland Mortgage Backed Securities 3 B.V. (Lowland 3), a series of Dutch RMBS transactions partially backed by the Nationale Hypotheek Garantie (NHG).

The mortgages in all transactions were originated and serviced by SNS Bank N.V. (SNS, BBB+/Negative/F2) and its subsidiaries. NHG loans comprise 36% of the current outstanding pool in Lowland 1 and around 1% each in Lowland 2 and 3.

A full list of rating actions is available at the end of this commentary.

KEY RATING DRIVERS
Stable Performance
The affirmations reflect the stable performance of the underlying assets. As of the April 2014 payment date, three-month plus arrears ranged from 0.48% (Lowland 2) to 1.11% (Lowland 1), compared with the average Dutch prime three-month plus arrears of 0.84%. The outstanding balance of loans with properties sold at a loss ranged between 0.05% (Lowland 3) and 0.44% (Lowland 1). Fitch expects the stable performance to continue due to the quality of the securitised loans and a gradual recovery in the Dutch housing market.

The higher arrears in Lowland 1 are driven by the non-NHG portion of the pool. Based on the loan-by-loan data, non-NHG loans accounted for 80% of total arrears although they represent 64% of the total pool. As a result Fitch reduced the base case foreclosure frequency of NHG loans by 25% in this pool.

Unhedged Transactions
There is no swap in place to hedge the interest rate mismatch between the notes and the mortgage loans in any of the three transactions. Instead, the proportions of fixed- and floating-rate notes issued are similar to the proportions of fixed- and floating-rate loans in the pool, thereby providing natural hedging for the interest rate risk.

Despite SNS and its subsidiaries having provided guarantees on the portfolio's minimum weighted average margin and interest rate to protect against a decline in the portfolio yield when loans reset, Fitch has not given credit to this commitment and in its analysis discounted any excess spread generated by the structures. The analysis showed that the credit enhancement available is overall sufficiently robust to maintain the current ratings.

RATING SENSITIVITIES
Deterioration in asset performance may result from economic factors, in particular the increasing effect of unemployment. A corresponding increase in new defaults and associated pressure on excess spread levels, beyond Fitch's assumptions, could result in negative rating action, particularly for the junior tranches.

The rating actions are as follows:

Lowland Mortgage Backed Securities 1 B.V.
Class A1 (XS0729888924) affirmed at 'AAAsf'; Outlook Stable
Class A2 (XS0729892108) affirmed at 'AAAsf'; Outlook Stable
Class B (XS0729892959) affirmed at 'AAsf'; Outlook Stable
Class C (XS0729893411) affirmed at 'BBB+sf'; Outlook Stable
Class D (XS0729893767) affirmed at 'BBsf'; Outlook Stable

Lowland Mortgage Backed Securities 2 B.V.
Class A1 (XS0887366135) affirmed at 'AAAsf'; Outlook Stable
Class A2 (XS0887366481) affirmed at 'AAAsf'; Outlook Stable
Class B (XS0887378064) affirmed at 'AAsf'; Outlook Stable
Class C (XS0887378577) affirmed at 'Asf'; Outlook Stable
Class D (XS0887378908) affirmed at 'BBsf'; Outlook Stable

Lowland Mortgage Backed Securities 3 B.V.
Class A1 (XS0988484878) affirmed at 'AAAsf'; Outlook Stable
Class A2 (XS0988486493) affirmed at 'AAAsf'; Outlook Stable
Class B (XS0988487202) affirmed at 'Asf'; Outlook Stable
Class C (XS0988487970) affirmed at 'BBB+sf'; Outlook Stable
Class D (XS0988488606) affirmed at 'BBB-sf'; Outlook Stable