Fitch Updates South African Residential Mortgage Loss Criteria Assumptions
Fitch Ratings-London-25 February 2010: Fitch Ratings has today updated its rating methodology for assessing credit risk in South African residential mortgage loan pools that are used as collateral for structured finance transactions.
"From the data we have received it has not been possible to devise standard mortgage default assumptions for South Africa and consequently mortgage default assumptions for future transactions will be based on an analysis of lender specific data," said Alastair Bigley, a Senior Director and Head of South Africa RMBS at Fitch.
Fitch has made enhancements to its criteria for assessing South African mortgage portfolios. The default probability assumptions will be based on the historical performance analysis on a case-by-case basis. The main changes to the criteria focus on a more forward-looking approach, increased market value decline (MVD) assumptions, foreclosure time assumptions and high/low property value adjustments. These changes to South African RMBS criteria replace the existing "South African Residential Mortgage Default Model 2003" report dated 5 August 2003.
In particular, the updated criteria place an emphasis on Fitch's performance expectations, especially at lower rating levels. Loss expectations derived for lower rating levels are likely to be more 'point in time' and vary in line with changes in Fitch's expectations as influenced by actual asset performance. The higher rating scenarios are relatively more remote and are intended to show rating stability through all aspects of an economic cycle.
Fitch continues to expect to receive detailed loan level performance and repossession information for all South African pools that it evaluates in order to estimate the default probability for specific pools and also arrive at a benchmark default criteria in the long term.
Based on loan level analysis of repossessed loans and their recovery rates, Fitch has increased MVD assumptions across all rating scenarios. The MVD encompasses house price decline and forced sale discount assumptions. Fitch will request loan-by-loan repossession data from lenders at the time of ratings analysis. If this data suggests that forced sale discounts and loss severity values for a particular lender are not in line with Fitch's expectations, further adjustments to MVDs may be made on a case-by-case basis.
Fitch published a master-criteria report "EMEA Residential Mortgage Loss Criteria" on 23 February 2010 along with separate country-specific criteria addendums containing specific assumptions for the following countries: Belgium, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, and the UK. All of the reports can be found at www.fitchratings.com. The master criteria - along with the South African addendum - replaces the "South African Residential Mortgage Default Model" 2003 report published on 5 August 2003.
The published criteria assumptions will be used for rating new RMBS transactions. To date, all South African RMBS transactions are rated on the South African National Rating Scale, identified by a (zaf) ratings suffix. Fitch is currently in the process of reviewing its ratings of all South African RMBS transactions and will comment further in due course. The surveillance process involves a number of quantitative and qualitative factors including an assessment of market developments, loan-by-loan and pool level analysis, and a comparison of current credit enhancement levels against a stressed loss assumption at each rating category.
Contacts: Alastair Bigley, London, Tel: +44 20 7417 6278; Kali Sirugudi, +44 20 7682 7257, Jaime Sanz, +44 20 7682 7279.
Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: julian.dennison@fitchratings.com.
Additional information is available at www.fitchratings.com.
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