DBRS Releases Updated U.K. RMBS Model

DBRS has today released its model and criteria update for U.K. residential mortgage-backed securities (RMBS) for immediate application. The model is made available in an open format as part of DBRS’s continued efforts to increase the transparency of its rating process and help market participants understand how DBRS assesses the quantitative risks for residential mortgage securitization in the United Kingdom.

The U.K. RMBS model has been made available for the analysis of U.K. residential mortgage-backed transactions since November 2006. The revised model provides for a more consistent and objective evaluation of risks by incorporating the factors described below:

(1) Refined analysis of buy-to-let (BTL) loans. Future interest-coverage ratios (which include rental increases and void periods) are incorporated into the risk analysis for individual BTL loans.

(2) Loan level prepayment. Given the large impact prepayment assumptions have on note life and excess spread, accurate and refined estimates of prepayments are crucial for transaction transparency, efficiency and robustness. DBRS is the first rating agency in Europe to create (and make available on a transparent basis) a loan-level approach to prepayment modelling.

(3) Adjustment for credit risk layering. DBRS makes a risk adjustment to account for risk layering within a single mortgage loan, an important contributor to the rise of arrears and defaults in the U.S. mortgage market in recent times. Although the presence of credit risk layering in the United Kingdom has not been as prevalent as in the United States, DBRS considers this to be an important element when estimating ultimate default behaviour.

(4) Creation of cash flow rep lines. Part of the DBRS loan-level analysis for U.K. mortgage portfolios includes standardised criteria for the creation of “rep lines” to aid the accuracy and efficiency of cash flow modelling.

Victoria Johnstone, Senior Vice President, Structured Finance Quantitative Group says: “The U.K. RMBS model update has been developed to provide market participants with the best available analytical tool that offers accurate and reliable risk assessment.

“Following the recent volatility in the credit markets and the resulting uncertainty surrounding RMBS, there is a need for greater understanding of the risks involved. DBRS believes it is important to make its updated model available in an open format to underscore the transparent nature of our ratings process and to allow market participants to fully understand how risk is assessed.”

The U.K. RMBS model is available for download free of charge at www.dbrs.com/ukrmbs.

DBRS is a recognized international rating agency, providing timely and comprehensive rating opinions to the world’s capital markets. Privately owned and independent, DBRS offers in-depth credit analysis of corporate, financial institutions and government issues in North America, Europe, Asia and Latin America. DBRS’s extensive coverage of structured finance and securitization has solidified its standing as a leading provider of comprehensive, in-depth credit analysis.

DBRS is headquartered in Toronto, with offices in New York, Chicago, London, Frankfurt and Paris, and covers entities worldwide.

Media Contacts

Patrick Evans/Pete Marcus
Citigate Dewe Rogerson
+44 (0) 20 7638 9571
peter.marcus@citigatedr.co.uk