Bushfires won’t impact covered bonds and mortgage backed ratings

The Australian bushfires will have no impact on the ratings of covered bonds and residential mortgage-backed securities (RMBS) as they remain in remote or regional areas with low population levels, according to Fitch Ratings.

The credit rating agency said as the bushfire threat in Australia continues, it wasn’t yet possible to asses the impact on individual portfolios and a full assessment would take place after the threat had passed.

The mortgage portfolios that covered bonds and RMBS were concentrated in densely populated areas, while the bushfires had mostly impacted less-densely populated areas.

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Most RMBS transactions restrict the type of residential properties that can be included, particularly in the case of whether it’s in a metro area, which would restrict the exposures in the affected areas.

“As for the cover pools, any mortgage loans deemed to be affected would most likely be removed from the pool, or if not removed, any such loan that falls in arrears for more than 90 days would be excluded in the calculation of the asset coverage test,” Fitch Ratings said.

“The covered bond programmes currently hold excess mortgage collateral, which is greater than that required under the asset coverage test.”

It said the level of credit enhancement available to cover mortgage defaults in the covered bonds and RMBS portfolios would be sufficient to cover any loss that would arise from locations hit by the bushfires.

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