DBRS Confirms Ratings of Xceed Mortgage Trust, Series 2007-T2

DBRS has today confirmed the ratings of the outstanding rated Series 2007-T2 Notes (the Notes) issued by Xceed Mortgage Trust (the Trust) as follows:

-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)

The confirmation of the ratings is part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants.

The ratings are based on the following factors:

(1) The levels of structural enhancement in subordination for classes rated A (sf) and BBB (sf), respectively, have increased significantly, from 8.0% and 3.5% at closing to 146.0% and 47.2%, respectively, as of December 31, 2011, according to the monthly servicer report provided by the seller, Xceed Mortgage Corporation (Xceed). The levels would be slightly lower, at 99.2% and 32.1%, if all notes, including the unrated Class E (after implied write-down discussion below), are included in the calculation. In either case, the subordination levels will continue to increase as the mortgages are paid down. In addition, as a result of the transaction entering into amortization in March 2009, excess spread, if any, has been trapped in the structure instead of being released to Xceed. The Notes are being repaid sequentially and lower-rated Notes will not receive any principal repayment until the higher-rated Notes have been fully repaid.

(2) The high levels of credit enhancement available to the Notes, combined with the stable performance of the assets and the short remaining term to maturity, increases the likelihood that the Notes will be fully repaid before their Final Distribution Date of February 18, 2013. Should a loss on the Notes occur, it will happen in a reverse sequential order and begin with the unrated Class E notes, which are primarily supported by the cash collateral account. The BBB (sf)-rated Class D Notes would not be fully repaid if the losses over the remaining life of the transaction are greater than the current amounts in the cash collateral account ($11.6 million), provision account ($0.3 million) and excess spread available. DBRS considers the likelihood of the current collateral pool incurring additional losses in excess of $11.6 million (equivalent to more than 47% loss severity on all outstanding mortgages) to be low. As of December 31, 2011, the cumulative losses were $13.3 million (or 2.5% of the closing collateral), based on a pool factor of 4.5%.

(3) The cash account balance, funded by the issuance of Class E notes at closing, remained stable at $18.8 million from closing until March 2009 and has since declined to $11.6 million as of December 31, 2011. Class E notes are therefore considered under-collateralized with an implied write-down of $7.2 million to date. From March 2009 to June 2011, the Trust was under-hedged by the amount of the Class A-2 and Class A-3 Notes outstanding over the swaps in place at closing whose notional assumed the Class A-2 and Class A-3 Notes would be fully repaid on their respective targeted payment dates. As a result of the hedge mismatch, interest collections, along with excess spread, were insufficient to pay the elevated expenses of the Trust during this period and therefore, the cash account was drawn to make up for the cash shortfall. Since the repayment of the Class A-2 and Class A-3 Notes in June 2011, the mismatch amount of hedges has been small and draws on the cash collateral account have been nominal or zero.

Servicing of the mortgage loans in the pool has been delegated to MCAP Service Corporation (MCAP), one of the largest mortgage servicing companies in Canada. There is no commingling of mortgage payments with the funds of Xceed as all periodic payments are automatically debited from the accounts of the borrowers and deposited into the Trust accounts maintained by MCAP; however, Xceed retains ultimate responsibility for the servicing.

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 on the timely receipt of performance information from the related providers. The performance and characteristics of the custodial pool and the Notes are available and updated each month in the Monthly Canadian ABS Report (see Related Research to the right).

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

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Canadian Residential Mortgage-Backed Securities (RMBS) Transactions, Swap Criteria for Canadian Structured Finance Transactions and Legal Criteria for Canadian Structured Finance, which are available on our website under Methodologies.