DBRS Confirms All Ratings of CHIP Mortgage Trust

DBRS Limited (DBRS) confirmed all ratings on the outstanding notes (the Notes) issued by CHIP Mortgage Trust (the Trust) as follows:

-- Series 2013-1 Medium Term Notes at AAA (sf)
-- Series 2015-1 Medium Term Notes at AAA (sf)
-- Series 2016-1 Medium Term Notes at AAA (sf)

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

The confirmations are part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants and are 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 90.3% as at November 2017, as there are currently 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 re-appraisal of the properties. Re-appraisal of the 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.

As at August 31, 2017, the weighted-average loan-to-value ratio (weighted by current loan amount) of the portfolio was 44.0%, as calculated by DBRS. In addition, there is spread between the reverse mortgage rate and the cost of funds of the Notes.

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 on 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.”

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Master Canadian Structured Finance Surveillance; Legal Criteria for Canadian Structured Finance; Derivatives Criteria for Canadian Structured Finance; and Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages, which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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