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Rating Action:

Moody's downgrades ratings of Irish Non-Conforming RMBS issued by Lansdowne Mortgage Securities 1 and 2

17 Mar 2011

EUR 324.85 million of debt securities affected

Madrid, March 17, 2011 -- Moody's Investors Service announced today that it has downgraded the ratings of seven notes issued by Lansdowne Mortgage Securities 1 and 2 ("Lansdowne 1 and Lansdowne 2"). A detailed list of the rating actions is provided at the end of this press release.

The seven affected tranches, had been placed on review for possible downgrade on 2 December 2010 due to worse-than-expected collateral performance and considerations on the macro-economic environment in Ireland. Today's rating actions conclude the review and take into account the increased loss expectations for the two mortgage portfolios backing Lansdowne 1 and Lansdowne 2.

RATINGS RATIONALE

Today's rating action is driven by the poor and rapidly deteriorating performance of the collateral in these two transactions as a result of the weakened macro-economic environment. It also reflects Moody's expectation that arrears in Irish RMBS will continue to rise through 2011 and will remain at elevated levels for several years.

Key collateral assumptions revised

Lansdowne 1 and Lansdowne 2 are performing significantly worse than Moody's expectations as of the latest review in December 2009. As of December 2010, loans more than 90 days in arrears had increased to 47.16% of current balance in Lansdowne 1 and 48.51% in Lansdowne 2 compared to 32% and 34% as of September 2009. Cumulative losses realized since closing remain low at 0.19% and 0.25% of original pool balance for Lansdowne 1 and 2. Moody's notes that loss realization is slow for Irish RMBS given lengthy enforcement procedures in Ireland and moratorium imposed. For this reason, Moody's considers loans with delinquencies exceeding 270 days as a proxy for defaults. As of the December 2010 payment date, the 270+ delinquencies for these two transactions had increased to 28.34% of the outstanding pool balance in Lansdowne 1 and 31.58% in Lansdowne 2 compared to 16.72% and 19.9% as of September 2009. 66.26% and 74.37% of the loans that were delinquent up to 270 days ) as of August 2009 have deteriorated their performance and moved into a higher arrears bucket by August 2010. Sales of properties resulted in severities above 50% in the recent quarters.

Moody's expects that the increasing unemployment and lower income arising from the austerity measures will continue to hurt borrower's ability to fulfill their financial obligations. The collateral performance in these two transactions will also be negatively affected by interest rate increase as most of the mortgage loans are floating rate. A high proportion of the loans in the pools are impaired credit loans or have limited borrower income verification; this makes the borrowers particularly vulnerable to economic stress. In addition to high arrears the loss severity will also be high as a result of the oversupply of housing, lack of refinancing and further decline in house prices, expected to be equal to approximately 45% decline from peak to trough in the base case. As a result Moody has increased the portfolio expected loss assumption to 8% and 13.5% of original pool balance for Lansdowne 1 and 2 (25% and 30% of current balance respectively). Moody's has revised the MILAN Aaa CE assumption for Lansdowne 1 to 60% because of the risky pool characteristics In the case of Lansdowne 2 Moody's notes that the available credit enhancement (excluding excess spread) for the senior notes (22.7%) is lower than the expected loss assumption for the portfolio. Hence each of the tranches will ultimately suffer a loss in the expected loss scenario as reflected in today's rating action. The extent of the losses on the tranches will depend on the recoveries received on the defaulted loans.

TRANSACTION FEATURES

Lansdowne 1 and 2 closed in April 2006 and November 2006 respectively and their current pool factors are approximately 31.7% and 44.06%. The assets supporting the notes are first-ranking mortgage non-conforming loans secured on residential properties located in Ireland. The asset pools had an indexed weighted average loan-to-value (LTV) of 74.93% in Lansdowne 1 and 87.03% in Lansdowne 2 as of Q3 2010 according to Moody's computations.

The pools backing the notes consist of impaired credit loans and non-conforming loans. Impaired credit loans represented 12.57% in Lansdowne 1 and 10.54% in Lansdowne 2, while borrowers with missed payments on their previous mortgage amounted to 38.95% in Lansdowne 1 and 35.12% in Lansdowne 2, as of August 2010. Non-conforming loans include loans with limited verification of borrower income which represented 23.92% in Lansdowne 1 and 43.26% in Lansdowne 2, as of the same date.

Reserve funds for Lansdowne 1 and 2 are fully funded and cannot amortize as the delinquency trigger has been breached. Although the transactions benefit from sizeable excess spread, it is not being trapped to provision for future losses on the delinquent loans and can only be used to cover losses already realised.

For details on the deal structure, please refer to the "Lansdowne 1 and Lansdowne 2" new issue report available on www.moodys.com.

Please also refer to the "Irish RMBS December 2010 Indices", which is available on www.moodys.com in the Industry / Sector Research sub-directory under the Research & Ratings tab.

Moody's ratings address the expected loss posed to investors by the legal final maturity of the notes (June 2045 and September 2048 respectively). Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

The principal methodologies used in Lansdowne 1 rating were Moody's MILAN Methodology for Rating Irish RMBS published in April 2009 and Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction published in December 2008.

The principal methodology used in Lansdowne 2 rating was "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction" published in December 2008.

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

REGULATORY DISCLOSURES

The ratings have been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Information sources used to prepare the credit ratings are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purpose of maintaining a credit rating.

LIST OF RATING ACTIONS

Issuer: Lansdowne Mortgage Securities No. 1 p.l.c

....EUR258M A2 Certificate, Downgraded to Baa3 (sf); previously on Dec 2, 2010 Aa1 (sf) Placed Under Review for Possible Downgrade

....EUR13.85M M1 Certificate, Downgraded to Caa2 (sf); previously on Dec 2, 2010 A1 (sf) Placed Under Review for Possible Downgrade

....EUR9.25M M2 Certificate, Downgraded to Ca (sf); previously on Dec 2, 2010 Ba1 (sf) Placed Under Review for Possible Downgrade

....EUR11.1M B1 Certificate, Downgraded to C (sf); previously on Dec 2, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade

Issuer: Lansdowne Mortgage Securities No. 2 p.l.c.

....EUR372.75M A2 Certificate, Downgraded to Caa1 (sf); previously on Dec 2, 2010 A2 (sf) Placed Under Review for Possible Downgrade

....EUR15.75M M1 Certificate, Downgraded to C (sf); previously on Dec 2, 2010 Ba2 (sf) Placed Under Review for Possible Downgrade

....EUR11.8M M2 Certificate, Downgraded to C (sf); previously on Dec 2, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade

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 www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit 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.

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

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Madrid
Maria Turbica Manrique
Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
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 Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades ratings of Irish Non-Conforming RMBS issued by Lansdowne Mortgage Securities 1 and 2
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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