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Rating Action:

Moody's downgrades DSB-originated Dutch RMBS Monastery transactions and updates on servicing transfer

10 Aug 2011

London, 10 August 2011 -- Moody's Investors Service has today downgraded the ratings of 4 classes of notes issued by Monastery 2004-1 B.V. and Monastery 2006-1 B.V., which are both residential mortgage-backed securities (RMBS) transactions backed by loans originated by DSB Bank NV (DSB). Today's rating actions follow Moody's receipt of new information regarding additional losses linked to residual debts in the loan portfolios backing the notes. All downgraded ratings remain on review for downgrade because of uncertainties related to the amount and the treatment of due care claims on the securitised loans, as discussed in the press release Moody's published on 31 May 2011. A detailed list of today's rating actions can be found at the end of this press release.

RATINGS RATIONALE

Today's rating actions take into account: (i) Moody's revision of the expected loss assumptions, following the allocation of additional losses to the two transactions; and (ii) the sub-delegation of servicing to Quion Services B.V. and Quion Hypotheekbegeleiding B.V. (together, "Quion").

The main driver for today's actions is the allocation of additional, previously unreported losses to the transactions. Moody's was informed that these additional losses arise from residual debts classified as unsecured assets in the current pool balance. The residual debts originated when the sale proceeds from previously defaulted assets were not sufficient to fully cover the outstanding balance of the mortgage loans. According to the transaction documents, these shortfalls on a property sale should have been recognised as a realised loss and should have been provisioned for in the principal deficiency ledgers. Moody's was informed that the residual debts will be written off and provisioned for in the coming months.

The residual debts represent additional losses amounting to: (i) EUR2.6 million for Monastery 2004, corresponding to 0.9% of the current pool balance; and (ii) EUR4.5 million for Monastery 2006, corresponding to 0.8% of the current pool balance.

As a result, Moody's has revised its expected loss assumptions to account for these additional losses. The analysis resulted in an expected loss assumption of 1.5% of the original pool balance for Monastery 2004, which corresponds to our latest assumption of 1.2%, plus the additional 0.3% (of the original balance) of losses due to residual debt. In Monastery 2006, the analysis resulted in an expected loss assumption of 2.7% of the original pool balance, which corresponds to our latest assumption of 2.2%, plus the additional 0.5% (of the original balance) of losses due to residual debt. Our expectation of future losses remains unchanged -- excluding the short-term write offs of the residual debts -- and represent 3% of the current pool balance in both Monastery transactions.

SERVICING TRANSFER

Moody's was also informed that the bankruptcy trustees of DSB have entered into a sub-delegation agreement with Quion with the aim of transferring servicing activities from the bankruptcy trustees of DSB to Quion in relation to all loans originated by DSB. The effective servicing transfer will take place in or around May 2012 and the sub-delegation contract has an initial term of five years.

The services envisaged to be carried out by Quion as from May 2012 comprise all servicing activities currently conducted by the bankruptcy estate except for activities in relation to processing the due care claims. The bankruptcy trustees will continue to handle these due care claims directly. During the transition period until May 2012, DSB will continue to service the loan portfolio and DSB employees will benefit from an extended job guarantee until the summer 2012.

In the sub-delegation contract, each special purpose vehicle (SPV) has been granted the right to enter into a direct legal relationship with Quion on similar terms to those agreed upon by Quion and the bankruptcy trustees in the sub-delegation contract. Moody's was informed that it is the intention of the SPVs to enter into such a direct relationship with Quion in due course.

Moody's has assessed the current servicing arrangements under the rating implementation guidance "Global Structured Finance Operational Risk Guidelines: Moody's Approach to Analysing Performance Disruption Risk" published on 28 June 2011. Although the uncertainty around the servicing has reduced with the announcement of the agreement with Quion, even if the issuers enter into a direct agreement with Quion, Moody's views the limited period of the agreement of five years as credit negative for both transactions. Furthermore, Moody's notes that Quion is not rated by Moody's. Based on this, Moody's concludes that the maximum achievable rating in the Monastery transactions remains in the single A range.

The fees charged by Quion for servicing the mortgage and consumer loans originated by DSB have been disclosed. We understand that the new fees charged by Quion will be payable by the issuers, irrespective of whether the issuers enter into a direct agreement with Quion or not. Quion's fee structure is substantially similar to the servicing fee structure at closing of the transactions. The fees charged by Quion would amount to approximately 10 basis points per year of the current portfolio balance in the two transactions. The fees may increase over time as borrowers partially prepay their loans; however, Moody's considers that the fees are likely to remain within a 20 to 30 basis point range.

Quion is an independent third party servicer specialised in the servicing of Dutch residential mortgage loans. It was established in 1994. As of 31 December 2010, Quion servicing portfolio amounts to EUR24 billion of residential mortgage loans. Quion is expected to use the transition period until May 2012 to ensure the compatibility of its systems with the ones of DSB in terms of loan administration.

The principal methodology used in this rating was Moody's Approach to Rating RMBS in Europe, Middle East, and Africa, published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other methodologies used in this rating were Moody's Approach to Rating Dutch RMBS, published in December 2004 and Moody's Updated MILAN Methodology for Rating Dutch RMBS, published in October 2009.

LIST OF ACTIONS

Issuer: Monastery 2004-I B.V.

....EUR8.5M D Notes, Downgraded to Ba2 (sf) and Remains On Review for Possible Downgrade; previously on May 31, 2011 Downgraded to Baa3 (sf) and Remained On Review for Possible Downgrade

....EUR10.5M E Notes, Downgraded to Caa2 (sf) and Remains On Review for Possible Downgrade; previously on May 31, 2011 Downgraded to B3 (sf) and Remained On Review for Possible Downgrade

Issuer: Monastery 2006-I B.V.

....EUR28.7M C Notes, Downgraded to B3 (sf) and Remains On Review for Possible Downgrade; previously on May 31, 2011 Downgraded to B2 (sf) and Remained On Review for Possible Downgrade

....EUR9.5M D Notes, Downgraded to Ca (sf) and Remains On Review for Possible Downgrade; previously on May 31, 2011 Downgraded to Caa3 (sf) and Remained On Review for Possible Downgrade

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the credit rating action. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

London
Maria Divid
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Barbara Rismondo
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades DSB-originated Dutch RMBS Monastery transactions and updates on servicing transfer
No Related Data.
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