DBRS Confirms All Ratings of CHIP Mortgage Trust

DBRS has today confirmed all outstanding rated notes (the Notes) issued by CHIP Mortgage Trust (the Trust) as follows:

-- AAA (sf) for Series 2010-1 Medium Term Notes
-- AAA (sf) for Series 2011-1 Medium Term Notes (collectively, the Senior Notes)
-- BBB (sf) for Series 2006-2B Subordinated Medium Term Notes (the Subordinated Notes)

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

The confirmation is based on the following factors:

(1) Protection to the Notes comes from (i) a minimum cash reserve equivalent to six months of interest payable on all Senior and Subordinated Notes that mitigates the risk of any cash flow irregularity and (ii) the Trust is limited to debt issuance of 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. As of December 31, 2012, the senior debt issuance was 91.8% and the total debt issuance was 93.4%.

In addition, the Notes are protected by the equity in the property, excess spread and the unconditional guarantee as to payment of principal and interest provided by HOMEQ Corporation, the ultimate parent. As of December 31, 2012, the loan-to-value (LTV) of the portfolio was 39.5%.

(2) 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.

(3) The assets are a large diversified portfolio of reverse mortgages for residential properties situated in or near major urban centres across Canada.

(4) 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 once every five years.

(5) HomEquity Bank, which directly owns the Trust, is the servicer and has extensive experience in originating and administering reverse mortgages in Canada.

(6) A first-ranking charge for senior-ranked noteholders on all the assets and undertakings of the Trust.

The Trust is structured as an unincorporated open-ended investment trust. As all series of notes are supported by the same portfolio of reverse mortgages, all senior notes rank pari passu with each other and all subordinated notes rank pari passu with each other.

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 methodology is Canadian Structured Finance Surveillance, which can be found on our website under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.