OREANDA-NEWS. Fitch Ratings has affirmed the Lowland Mortgage Backed Securities series and Green Lion 1 B.V.'s (Green Lion 1) class A and B notes and upgraded the class C notes.

The mortgages in the Lowland transactions were originated and serviced by SNS Bank N.V. (SNS, BBB/Stable/F3) and its subsidiaries. NHG loans comprise 38.6% of the current outstanding pool in Lowland 1 and around 1% in Lowland 2 and 3. Green Lion 1's portfolio was originated and serviced by Westland Utrecht Bank (WUB), which is part of ING Bank (A/Stable/F1).

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

KEY RATING DRIVERS
Arrears within Expectations, Increasing Repossessions
As of January 2016, loans with more than three monthly payments overdue were reported between 0.6% (Lowland 3) and 0.8% (Lowland 1) of the current portfolio balance. Fitch notes that late arrears in these transactions remain close to the Fitch Netherlands All Deals Index (0.6%). Late arrears in Green Lion 1 and Lowland 1 decreased 30bps over the period, which is also in line with the market trend (-20bpd yoy).

Over the same period, the cumulative balance of mortgages whose property has been repossessed and sold increased in all transactions. While sold repossessions remained negligible in Lowland 2 and 3 (about 0.2% of the original balance in both deals), they were reported at 0.9% in Lowland 1. Green Lion 1 benchmarks the Index at 1%. The decrease of arrears in the older vintages and limited repossessions contribute to Fitch's expectation of sound future performance for these deals, as reflected in the Stable Outlooks.

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 Lowland 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.

Interest Only Maturity concentration in Lowland
More than 20% of each of the Lowlands portfolios is made up of interest-only loans maturing in a three-year period. In Fitch's view, this represents a concentration risk. The agency applied an increased probability of default to the concentrated portion of the portfolio. Despite this additional stress, the credit enhancement (CE) available to the rated notes is sufficient for the ratings to be affirmed.

Deposit and Insurance Set-off risk
SNS is a deposit-taking institution. A borrower could potentially set-off their savings deposit against the outstanding mortgage balance in case of the insolvency of the seller. After accounting for the deposit guarantee scheme, which protects saving deposits up to EUR100,000, the set-off exposure has been sized at 0.36%, 0.31% and 0.16% in Lowland 1, 2 and 3, respectively. The securitised loans in Green Lion 1 are not connected with any current account or savings deposit.

The intention of insurance policies is that the proceeds of the investments can be used to repay the mortgage loan in full or in part at maturity. If the policy providers are no longer able to meet their obligations, for example as a result of insolvency, borrowers may seek to set-off the claim over the insurance provider against their mortgages, on the basis that the intention is for the loan to be repaid using the proceeds from the policy.

The risk that set-off could be successfully exercised depends on whether the lender and insurance policy provider are the same legal entity, or whether the mortgage and insurance policies are offered as one product. If they are, Fitch assumes a set-off probability equal to 100%. This figure is reduced to 25% if insurance provider and lender are different institutions or if the mortgage and insurance policy are not a joint product.

Currently, mortgage loans that have an insurance policy attached represent 15% in Green Lion 1 while for Lowlands Fitch relied on the information available at closing.

The derived deposit and insurance set-off exposures are accounted for in the analysis of the available CE.

Sufficient CE
CE is reported between 1.7% (Lowland 1's class D notes) and 23.7% (Green Lion 1's class A notes). CE is provided by both the collateralised assets and a reserve fund equal to 2.5% of the outstanding notes balance in Green Lion 1, while no reserve provides credit protection to the Lowland series. Fitch's analysis of the current CE resulted in the affirmation of the Lowland series and of the class A and B notes in Green Lion 1. Fitch deemed the CE sufficient to upgrade Green Lion 1's class C notes.

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.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. The agency notes that the Lowland's pool tapes did not include the information related to the amount of insurance loans and information on the insurance provider was not provided for any of the deals under review. Fitch relied on the information available at transactions' closing.

Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Prior to Green Lion 1's closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Prior to the closing of each of the Lowland deals, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated errors or missing data related to the Foreclosed property value and valuation date information. These findings were considered in this analysis by reducing the property values by 0.6% in Lowland 1 and 2 and by 2% in Lowland 3, which is in line with the initial rating analysis.

Prior to the transactions closing, Fitch conducted a review of a small targeted sample of the originators' 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. Overall and together with the assumptions referred to above, Fitch's assessment of the 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 SNS as at 31 January 2016 and ING as at 17 February 2016
- Transaction reporting provided by SNS as at 18 February 2016 and ING as at 31 January 2016

MODELS
The models below were used in the analysis. Click on the link for a description of the model.