DBRS Releases Updated Methodology for Rating Canadian Residential Mortgages, HELOCs and Reverse Mortgages

DBRS Limited (DBRS) has today released an updated version of its methodology “Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages,” which supersedes the version published in November 2013. Publication of the updated methodology is part of DBRS’s ongoing effort to provide greater transparency to the ratings process by outlining the various factors that DBRS expects to see in transaction documentation, particularly for transactions rated or assessed at AAA or equivalent.

Because of certain similarities, the analytical approach to reverse mortgages, which was previously an appendix to the methodology “Rating Canadian Structured Finance Transactions” is now incorporated. In addition, editorial changes to clarify certain sections are made in the updated version, including an expanded discussion on balloon risk in the Term to Maturity section. Consistent with the DBRS commentary “Deflating the Balloon (Risk)” released on May 22, 2014, DBRS believes lender-specific liquidity lies at the heart of balloon risk and attempts to quantify the potential default concentration at the maturity of the loans as a result of non-renewal.

DBRS does not view the above changes as material and has determined that the updated methodology has no rating impact on existing Canadian structured finance ratings backed by these asset classes.

Note:
DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.