DBRS Confirms All Ratings of CHIP Mortgage Trust

DBRS has today confirmed the ratings of all the outstanding notes (the Notes) issued by CHIP Mortgage Trust (the Trust) in conjunction with the recent issuance of Series 2011-1 Medium Term Notes on February 1, 2011. The confirmation is part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants.

-- AAA (sf) for Series 2006-1 Medium Term Notes
-- AAA (sf) for Series 2006-3 Medium Term Notes
-- AAA (sf) for Series 2007-2 Medium Term Notes
-- AAA (sf) for Series 2007-3 Medium Term Notes
-- AAA (sf) for Series 2008-1 Medium Term Notes
-- AAA (sf) for Series 2010-1 Medium Term Notes (collectively, Senior Notes)
-- BBB (sf) for Series 2006-2B Subordinated Medium Term Notes
-- BBB (sf) for Series 2007-1B Subordinated Medium Term Notes
-- BBB (sf) for Series 2007-2B Subordinated Medium Term Notes (collectively, Subordinated Notes)

The ratings are based on the following factors:

(1) The conservative underwriting standards associated with the origination of the reverse mortgages, including (i) the use of qualified appraisers, (ii) the reduction of appraised values by region, property quality, property type and potential market illiquidity adjustments in specific locations, and (iii) the use of conservative actuarial tables in determining the expected occupancy term.

(2) A large, diversified portfolio with residential real estate situated in or near major urban centres across Canada, with expected concentration in Ontario.

(3) The level of ongoing review and reappraisal of the properties associated with the reverse mortgages. Reappraisal of properties occurs on a formal basis at least every five years.

(4) HomEquity Bank (HomEquity, formerly Canadian Home Income Plan Corporation) has extensive experience in originating and underwriting reverse mortgages in Canada.

(5) A first-ranking charge for Senior Note holders on all the assets and undertakings of the Trust.

(6) The Notes are fully and unconditionally guaranteed as to payment of principal and interest by HOMEQ Corporation.

The Trust is structured as an unincorporated open-end investment trust. As all series of notes are supported by the same portfolio of reverse mortgages, all AAA (sf)-rated notes rank pari passu with each other and all BBB (sf)-rated notes rank pari passu with each other. The Trust regularly issues notes to assist the funding of reverse mortgages originated by HomEquity Bank, a wholly owned subsidiary of HOMEQ Corporation.

All reverse mortgages must meet specific underwriting guidelines to be purchased by the Trust. The Trust is permitted to issue up to 95% of the aggregate balance of reverse mortgages in senior-ranked Notes and up to 98% of the aggregate balance of reverse mortgages in all Notes. There is a requirement on the Trust to retain a cash amount equal to at least 2% of the aggregate balance of reverse mortgages to provide a reserve fund of approximately six months of interest payments for the Notes. These requirements ensure that the Senior Notes have at least the support of 2% cash and 3% Subordinated or unrated Notes.

HomEquity is the servicer of the reverse mortgages in the Trust. As the reverse mortgages are sold on a fully serviced basis, no servicing fee will be paid to HomEquity as long as it remains the servicer. All principal, interest and other amounts due on the reverse mortgages are required to be remitted to the Trust within two business days of receipt.

Notwithstanding the stated expected payment dates of the Notes, certain events may result in early repayment or delays of one or more series. Such events are called events of default. Following the occurrence of an event of default, collections from the reverse mortgages will be applied in the following priority: certain expenses of the Trust, Senior Note interest, Senior Note principal, fees of the Trust’s service providers, Subordinated Note interest and finally, Subordinated Note principal. Essentially, this provides the Senior Notes with preferential access to the collections from the reverse mortgages, in an amount equal to the Subordinated Notes.

DBRS monitors the performance of the transaction to identify any deviation from DBRS’s expectation at issuance and to ensure that the ratings remain appropriate. The review is predicated upon the timely receipt of performance information from the related providers. The performance and characteristics of the reverse mortgage portfolio and the Notes are available and updated each month in the Monthly Canadian ABS Report (see Related Research below).

For more detailed information on the transaction structure, please refer to the rating reports of the Trust at www.dbrs.com.

Note:
The applicable methodologies are Rating Reverse Mortgage Transactions in Canada, Legal Criteria for Canadian Structured Finance and Swap Criteria for Canadian Structured Finance Transactions, which can be found on our website under Methodologies.