SCI Bulletin: Drive to make temporary loan mods permanent

News
Drive to make temporary loan mods permanent
The US Treasury and Department of Housing and Urban Development (HUD) have launched a nationwide campaign to help borrowers that are currently in the trial phase of their modified mortgages under the Obama Administration's Home Affordable Modification Program (HAMP) convert to permanent modifications.

More than 650,000 borrowers have been helped by the programme thus far. Roughly 375,000 of the borrowers that have begun trial modifications since the start of the programme are scheduled to convert to permanent modifications by the end of the year. The Treasury and HUD will now implement new outreach tools and borrower resources to help convert as many trial modifications as possible to permanent ones.

"Encouraging borrowers to move through the process of converting trial modifications to permanent modifications remains a top priority for HUD," says HUD assistant secretary for housing and FHA commissioner David Stevens. "As a part of our continuing efforts to improve the execution of the HAMP programme, HUD is committed to working with servicers, borrowers, housing counselors and others dedicated to homeownership preservation to improve the transition of distressed homeowners into affordable and sustainable mortgages."

Deals
Third tender launched for UCI bonds
BNP Paribas has announced its third tender offer for Class A notes from the UCI Series 8 to 17 transactions. The offer is open from 7 to 11 December, with the results expected to be announced on 14 December for settlement on 30 December.

Rating agency actions
UAE deals downgraded
Fitch has downgraded the Class A (from single-A plus to triple-B minus), B (from single-A to double-B) and C (from triple-B to single-B) notes of UAE CMBS Vehicle No. 1 and assigned negative outlooks to all three tranches. At the same time, the rating agency has downgraded Thor Asset Purchase's US$2bn floating-rate notes due 2036 to triple-B minus from single-A minus and placed them on rating watch negative. The rating actions reflect its view on Dubai's weaker credit fundamentals, particularly in light of the Nakheel restructuring.

No rating impact from Borders' bankruptcy
Moody's says that out of the CMBS deals it rates, Epic Culzean, Eclipse 2006-4 and REC Retail Parks rely to some extent on rental income from Borders UK. The rating agency notes that at present the current tenant contribution as a percentage of the total rental income of each transaction ranges between 0.7% and 2.1%. At the loan level for multi-borrower transactions, the percentage of rental income contributed by Borders UK is not higher than 3.5%.

Moody's has analysed the affected loans to assess whether a potential adverse performance of Borders UK (in terms of rental arrears and/or vacating the properties) would significantly increase the assumed default risk of the securitised loan. Based on this analysis and on the information available, the agency is of the opinion that its current ratings on the outstanding notes should not be negatively impacted by such potential adverse performance of Borders UK. However, the outstanding ratings of affected transactions could become more sensitive to further adverse developments, it says.

MILAN methodology for Australian RMBS refined
Moody's has published its updated MILAN methodology for rating Australian RMBS. At the same time, the agency says that the refinements in themselves will not lead to any rating actions.

Irene Kleyman, a Moody's analyst and the author of the report, says: "The key goal of the update was to refine our model assumptions, using a detailed analysis of the Moody's database of about one million Australian residential mortgage loans. In addition, we have incorporated insights gained from the global financial crisis, including from other jurisdictions."

As part of this update, the agency reviewed and re-confirmed its default frequency assumptions on the basis of expanded mortgage insurance claims data. In response to greater price volatility, it also increased house price stress by 5% for most states.

Research
S-REITs' DRPs to improve ratings
The recent proposal by some Singapore REITs (S-REITs) to implement distribution reinvestment plans (DRPs) for their unit-holders is positive from a ratings standpoint, though their efficacy in cash retention remains limited, according to Fitch. In a new special report the agency discusses some of the aspects of DRPs, noting that while they improve credit profiles, they are not expected to lead to a positive rating migration in the S-REIT sector.

Fitch notes that a high percentage participation in a DRP from existing unit-holders can improve an S-REIT's liquidity profile. However, given that the proposed DRPs may provide unit-holders with an option to receive distributions in cash or in units, or a combination of both, the amount of cash that might be retained from a non-underwritten offering may be relatively immaterial.

Update for Japanese ABS performance indices
Moody's has updated the performance indices for Japanese ABS in its latest report for the sector.

The report says that the delinquency ratio, default rate and repurchase rate in the auto loan dynamic indices have been stable. The delinquency ratio and default rate in the installment sales loan indices have also been relatively stable in the past year.

However, the delinquency ratio and default rate in the card shopping loan indices have risen moderately, due to increases in the delinquency ratios and default rates in some of the transactions with a high proportion of revolving payment receivables in the underlying pool. Thus far, these default rate increases have been roughly within Moody's initial expected ranges.

Liquidity strong in Singapore CMBS
Singapore CMBS transactions are enjoying strong cashflow from their underlying properties, according to Moody's. With two transactions needing to be refinanced in 2010 and the economy showing signs of gradual improvement, the agency anticipates that they will be able to obtain the necessary funding by their expected maturity dates.

According to Moody's quarterly report for the sector, most transactions enjoy at least four times actual debt service coverage ratio and appraisers' loan-to-value ratios are in the 16%-32% range.

Technology
CDS pricing service to include Asia close
Fitch has extended its CDS pricing service to include consensus pricing data that captures Asian market closing prices. This will provide enhanced transparency on the CDS pricing of entities traded in Asian markets and further improve both users' risk management processes and their insight into the global CDS market, the agency says.

The new service covers sovereign and corporate CDS names and will be delivered to users as an additional file, sent to coincide with the closing of Asian markets. It is based on the same methodology and stringent data cleaning rules as Fitch's existing end-of-day CDS pricing files, and uses pricing data from the member banks of Fitch's global pricing services consortium. These banks provide Fitch with pricing information on a variety of structured finance and fixed income derivative assets.

Analytics platform enhanced for the buy-side
Interactive Data Corporation's fixed income analytics business has released a new service. BondEdge Asset Manager is designed to assist portfolio managers and analysts at asset management firms manage relative risk and reward versus leading fixed income indices and liability benchmarks.

Keith Webster, md of Interactive Data fixed income analytics, says: "Heightened volatility of total returns dispersion between bond sectors and quality cohorts have underscored the need for enhanced granular portfolio versus benchmark risk analysis and performance attribution tools. In addition, certain regulatory and accounting changes have heightened focus on the closer matching of portfolio and corresponding corporate pension liability risk characteristics. The analytical enhancements delivered with this latest release of BondEdge are a reflection of feedback provided by asset manager clients."