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08 Sep 2010
UK Prime RMBS Indices -- July 2010
London, September 08, 2010 -- The performance of the UK prime residential mortgage-backed securities
(RMBS) market continued its stable trend lines during July 2010,
according to the latest indices published by Moody's Investors Service.
In July 2010, the 90-days plus delinquency trend was stable
at 1.88%, the repossessions trend remained at 0.07%
and the cumulative losses increased slightly to 0.13%.
Moody's annualised total redemption rate (TRR) trend remained stable at
12.12% in July compared to 12.14% in June.
The Granite Master Trust remains an outlier with the Master Issuer reserve
fund below its target, which stepped-up in March 2010 by
GBP 37.5million due to the passing of the optional redemption date
for the Granite Master Issuer plc Series 2005-1 notes. This
is similar to the Granite Mortgages Funding reserve fund, which
stepped up in January 2010, leaving the funding reserve fund below
target. While excess spread is allowing the Granite Master Issuer
reserve fund to build up towards its target, the Granite Mortgages
Funding reserve fund continues to decrease due to its higher note margins.
A recent judgment by the UK High Court has increased the risk of balance
sheet insolvency and related event of default for UK securitisation issuers.
In the case of BNP Corporate Trustee Services Ltd vs. Eurosail
UK 2007-3BL PLC, the UK High Court ruled that Eurosail was
solvent. However, it also declared that post-enforcement
call options (PECOs) do not achieve the same result as limited recourse
and have no effect in preventing issuers from becoming balance sheet insolvent.
The judgment is credit negative for subordinate note holders in a variety
of UK securitisations for which balance sheet insolvency is an event of
default because the judgment increases the risk of insolvency-related
events of default, allowing senior bondholders to vote in favour
of a change in cash flow priorities. In addition, the judgment
increases the risk that such an event of default could result in termination
of swaps and other contracts.
The low interest rates and rising house prices in the UK have helped to
contain delinquencies and reduce repossessions over the past year.
Moody's expects growth in the UK economy to remain sluggish,
compared to normal economic recoveries, at 1.2% in
2010 followed by 2.3% in 2011. The fiscal tightening
that the coalition government will embark on brings a degree of uncertainty
to the strength of Moody's growth projections. Unemployment,
which averaged 7.6% in 2009 is expected to peak at 7.9%
in 2010. There is an adverse risk to this forecast due to civil
service employees being subject to budgetary cutbacks.
House prices fell close to 20% from their peak in the second half
of 2007 to a trough in H1 2009, according to the main indices.
Since then, house prices have rebounded between 7%-12%
depending on the index observed. However, cyclical economic
conditions still point to weak growth in house prices; the number
of house-purchase transactions is likely to remain significantly
below the long-term average.
Moody's outlook for UK Prime RMBS is negative (see the report "EMEA
ABS, CMBS & RMBS Asset Performance Outlooks", July
2010). However performance is expected to remain within Moody's
long-term assumptions and there are limited rating implications
as potential deterioration in the 2006 and 2007 originations will be mitigated
by better performing vintages for transactions with a cross-vintage
seasoning, particularly for Master Trusts.
There have been two new issuances in the UK Prime market since June 2010.
The Fosse Master Trust, originated by Santander UK plc, issued
Series 2010-2 notes totalling GBP2.2billion. The
Permanent Master Trust, originated by Halifax plc, issued
Series 2010-2 notes totalling GBP1.3billion. In total,
124 UK Prime RMBS transactions have been launched and rated by Moody's
since 1999 (90 outstanding). As of July 2010, the total outstanding
pool balance in the UK Prime RMBS market was GBP355.1 billion,
compared to GBP338.7 one year previously, which constitutes
a year-on-year increase of 4.8%.
Moody's indices are published mid-month and can be found on www.moodys.com
in the Structured Finance sub-directory under the Research &
Ratings tab, under the Structured Indices sub-category of
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
NOTE TO JOURNALISTS ONLY: For more information please contact EMEA
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Structured Finance Group
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JOURNALISTS: 44 20 7772 5456
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Christophe de Noaillat
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's: UK Prime RMBS Performance Remained Stable In July 2010
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