DBRS Publishes Dutch Addendum to European RMBS Insight Methodology

DBRS Ratings Limited (DBRS) has today published its “European RMBS Insight – Dutch Addendum” (the Dutch Addendum).

Publication of the Dutch Addendum follows the conclusion of the Request for Comment period which began on 27 February 2017. No comments were received during the Request for Comment period and no material changes were made to the final methodology.

The Dutch Addendum, together with the European RMBS Insight Methodology (the Methodology; published in May 2016), effective today, supersedes the “Master European Residential Mortgage-Backed Securities Methodology and Jurisdictional Addenda” published in August 2016 for DBRS ratings assigned to Dutch residential mortgage-backed securities (RMBS) and covered bonds.

Application of the Methodology with the Dutch Addendum to the analysis of Dutch residential mortgages is deemed a material change as the Methodology introduces a new proprietary model (European RMBS Insight Model or the Model) to forecast the expected defaults and losses of European residential mortgage portfolios. The Model combines a loan scoring approach and dynamic delinquency migration matrices to calculate loan-level defaults and losses. Loan scoring models and dynamic delinquency migration matrices are developed using jurisdictional-specific data on loans, borrowers and collateral types. In addition, the European RMBS Insight Model uses a home price model to generate market value declines (MVDs).

The Dutch Addendum is the third jurisdictional addendum published for the Methodology. Analysis of Dutch residential mortgages per the Dutch Addendum includes indexation of the underlying property values for both the defaults and losses. The Dutch Addendum details the Dutch Mortgage Scoring Model (Dutch MSM), which was constructed using logistic regression with 29 parameters from 16 variables determined to assess the relative credit risk of the mortgage loans.

In addition, 12 risk segments were estimated based on scoring of the universe of eligible loans (per defined DBRS criteria) used to construct the Dutch MSM with a delinquency migration matrix estimated for each risk segment based on the observed roll rates. Rating scenario MVDs are determined for each of the 12 regions of the Netherlands (and the national level) using the house price data published by Statistics Netherlands.

DBRS currently rates 53 classes of notes across nine Dutch RMBS transactions. The impact of the Methodology’s adoption on Dutch RMBS ratings is expected to be primarily neutral. DBRS expects no rating action on AAA-rated tranches of DBRS-rated transactions. Positive and negative rating actions are expected on most, but not all, of the subordinate tranches that DBRS rates. DBRS expects to publish the relevant rating actions in the near term.

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

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