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

DBRS has today released an updated version of its “Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages” methodology, which supersedes the version published in November 2014. In addition, DBRS has released an updated version of the Canadian residential mortgage-backed securities model (the Canadian RMBS Model), which can be downloaded under the Products and Services section of the DBRS website. Publication of the updated methodology and model 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.

The analysis for National Housing Act Mortgage-Backed Securities with respect to negative carry is refined to further consider Canada Mortgage and Housing Corporation’s guarantee regarding timely payment of principal and interest, which represents a direct obligation of the Government of Canada. In addition, editorial changes to clarify certain sections are made in the updated version, including changes to reflect updates to the Canadian RMBS Model.

The following changes have been made to the latest version of the Canadian RMBS Model:

(1) Benchmark Indices: The neighbourhood, city and provincial housing price benchmark indices have been updated using 2014 resale data. The benchmark indices are used in the calculation of a property’s dearness ratio.

(2) Geographic Concentration: Provincial and city population data have been updated with more recent census data. The population figures are used in the calculation of geographic concentration.

(3) Second-Lien Loans: A coding oversight which incorrectly applied punitive assumptions to second-lien loans has been corrected.

DBRS does not deem the above changes to the methodology to be material and has determined that the updated methodology has no rating impact on existing Canadian structured finance ratings backed by these asset classes. In addition, the changes to the Canadian RMBS Model do not have a material impact on the output of the model. DBRS has reviewed all outstanding transactions backed by residential mortgages and home equity lines of credit in Canada and has determined that no rating actions are warranted.

Notes:
The methodology providing DBRS’s processes and criteria is available by contacting us at info@dbrs.com.

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