DBRS Confirms All Ratings of CHIP Mortgage Trust

DBRS Limited (DBRS) has today confirmed all the 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
-- AAA (sf) for Series 2013-1 Medium Term Notes
-- AAA (sf) for Series 2014-1 Medium Term Notes

All senior notes issued by the Trust rank pari passu with each other.

The confirmation is part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants and is based on the following considerations:

(1) Protection from (a) a minimum cash reserve equivalent to six months of interest payable on the Notes to mitigate cash flow irregularity and (b) the limit on senior debt issuance of up to 95% of the aggregate balance of reverse mortgages and on total debt issuance of up to 98% of the aggregate balance of reverse mortgages in the Trust. The Trust continues to comply with these covenants, with the same senior debt-to-mortgage ratio and total debt-to-mortgage ratio of 87.7% as of November 2014, as currently there are no subordinated notes outstanding.

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

(3) A large, diversified portfolio of residential properties situated in or near major urban centres across Canada, with an expected concentration in Ontario.

(4) The extensive experience of HomEquity Bank in originating and underwriting reverse mortgages, along with the level of ongoing review and reappraisal of the properties. Re-appraisal of properties occurs on a formal basis at least every five years.

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

In addition, there is spread between the reverse mortgage rate and the cost of funds of the Notes and at least 45% equity in the underlying properties at origination. As of November 30, 2014, the average loan-to-value of the portfolio was 41.4%.

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).

Notes:
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.

The applicable methodologies are Canadian Structured Finance Surveillance Methodology, Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages and Legal Criteria for Canadian Structured Finance, which are available on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.