Rooftop Mortgages was the first lender to see a tranche of its residential mortgage-backed securities (RMBS) downgraded earlier this year. Fitch Ratings said there were a number of other lenders already eating into their reserve funds, which
it believed, was a sign that further downgradings could be imminent.
Suzanne L Albers, director of RMBS at Fitch Ratings, said: “A lot will depend on the performances of lenders and property prices. Higher arrears are currently being offset by higher prices but we are seeing more lenders tap into the reserves when they should be growing.”
Albers was particularly concerned by the recent and prospective entrants into the non-conforming market, as these players were often dealing with borrowers who would feel the pressures on repayments first.
Brian Giles, communications director at Northern Rock, believed prime operators were safe.
He said: “We only deal in prime-based securities and we don’t believe it will effect us. In fact, we have received over 170 upgrades from various credit agencies this year.”
However, Bob Sturges, director of communications at Money Partners, believed the non-conforming sector must take heed that borrowers are struggling.
“We know arrears are rising and borrowers are feeling stretched so that’s likely to feed itself into their repayments. There is also a greater use of reserve funds because of people struggling, but this doesn’t automatically lead to a downgrade.
“The forecast is not wrong but it must be put in context. The underlying economic conditions remain favourable and most people are servicing their debts well. Most of the pressures are being felt on unsecured debt but many are being sensible and swapping expensive unsecured debt for cheaper secured debt.”
