Press Release
DBRS Publishes Updated Methodologies for Federal Family Education Loan Program ABS Securitizations
Student LoansDBRS has today published an updated methodology regarding the rating approach for U.S. Federal Family Education Loan Program (FFELP) transactions. FFELP loans are generally reinsured by the U.S. Department of Education for at least 97% of defaulted principal and accrued interest. The methodology outlines the key factors analyzed, which include:
-- Quality of servicing capabilities (as outlined in the DBRS methodology “Operational Risk Assessment for U.S. ABS Servicers”),
-- Collateral quality analysis,
-- Transaction financial structure and credit enhancement,
-- Cash flow scenario analysis and
-- Legal structure and opinions.
Changes to the methodology relate to the derivation and application of assumptions utilized by DBRS in its cash flow stress scenarios. The material changes include: basis risk stress assumptions due to the potential mismatch between asset and liability reference rates and the special allowance payment index change, revision of stressed default figures for each rating category that are based on a multiple versus a standard deviation approach, adding qualitative factors that are considered in the determination of multiples used, default timing curves for each loan type, updated deferment and forbearance assumptions for each rating category and loan type, revision of payment lags for defaulted loan claim reimbursement, adding assumptions and stresses for rehabilitated FFELP loans and adding certain generic cash flow assumptions. Other cash flow assumptions affected include prepayment rates, borrower benefit utilization rates, servicer cost inflation, cash account return percentage and delinquencies. The development of our updated methodology aligns the statistical approaches that DBRS utilizes when rating other asset classes and is based on DBRS analysis of the performance of approximately $300 billion of FFELP loans originated over a 20-year period.
DBRS has also published its new stressed forward interest rate curves per its new “Unified Interest Rate Model for U.S. Private Student Loan and U.S. Federal Family Education Loan Program Securitizations” that sets forth a consistent platform for the application of interest rate stresses applied across all U.S. student loan ABS ratings.
These methodologies, effective as of the date of this press release, supersede any previous methodologies. While it is not anticipated that the methodologies will result in any rating actions, all FFELP transactions rated by DBRS are placed Under Review with Developing Implications and any rating actions will be published as soon as possible.
Notes:
DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.
Ratings
Access Group, Inc., Series 2008-1
Blue Ridge Funding Trust
Bluemont Funding I
Brazos Higher Education Authority, Inc. 2004A Trust
GCO Education Loan Funding Master Trust-II, Series 2006-2
GCO Education Loan Funding Master Trust-II, Series 2007-1
Goal Capital Funding Trust 2007-1
Nelnet Student Loan Trust 2012-4
SLM National Funding Trust
Town Center Funding I
Town Hall Funding I; Town Center Funding I; Bluemont Funding I
ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.
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Contacts
- Jon Riber
Associate Credit Rating Officer - US ABS Ratings, Consumer Assets
+(1) 212 806 3250
jonathan.riber@morningstar.com - Jan Buckler
Senior Vice President, Sector Lead - Global Structured Finance Ratings
+(1) 212 806 3925
jan.buckler@morningstar.com - Kathleen Tillwitz
Managing Director - US Structured Finance Ratings, Operational Risk
+(1) 212 806 3265
kathleen.tillwitz@morningstar.com