The proposed methodology and its related material can be downloaded here or on scoperatings.com.

This call for comments is replacing the previously published call for comments dated 20th June 2022.

The RMBS Rating Methodology describes Scope’s approach to rating European residential mortgage-backed securities (RMBS) whose collateral consists of granular portfolios of standard mortgage loans to purchase, refinance or refurbish a residential property. This methodology may be selectively applied to RMBS outside of Europe when the mortgage loan market and institutional framework are similar. This methodology complements Scope’s General Structured Finance Rating Methodology and should be read with the Counterparty Risk Methodology.

This methodology presents the analytical framework and key concepts to be applied when rating RMBS, where for each country, our methodology will be complemented by a Country Addendum that provides additional analytical insights. In the absence of a country addendum detailing the assumptions for such country, our Rating Action Release will describe those.

The proposed methodology is expected to have either a neutral or positive impact on outstanding ratings for a limited number of issues of up to three notches.

Methodology highlights

Comprehensive credit risk framework. This methodology defines a comprehensive analytical framework for analysing the credit risk of a portfolio of mortgage loans. Such analysis relies on several sources of information including some or all of the following elements: (i) originator historical performance, (ii) loan characteristics assessed through a Scope Generic Scoring Algorithm, (iii) originator internal scores or public scores, and (iv) peer comparison versus other originators/servicers. Our approach captures both the specificities of the loan portfolio and originator and the potential macroeconomic shocks on the mortgage/housing market.

No mechanistic link to sovereign credit quality. As mortgage market specificities are embedded in the portfolio analysis, we do not mechanistically limit a transaction’s maximum achievable rating as a function of the sovereign credit quality of the country in which the assets are located. Instead, our distressed default rate already considers a severe macroeconomic shock and its subsequent mortgage crisis.

Originator/Servicer analysis. We leverage on the originator’s and servicer’s knowledge of their customers. We form a credit view of the assets based on our analysis of the originator’s quality and risk appetite, using amongst others market positioning, product portfolio, origination strategy, risk management, and the servicer’s monitoring and recovery functions including the presence of strong guarantees. Alignment of interest between parties is also factored in. Our assessment has a direct impact on the distribution of default rates (originator) and recovery rates (servicer).

Emphasis on Governance. This methodology puts significant emphasis on governance with a particular focus on: (i) the institutional governance of the mortgage market which directly affects our distressed default rate; (ii) the origination governance which also directly affects our distressed default rate, (iii) the servicing governance which directly affects our distressed recovery rate; and (iv) the rated transaction governance which may cap the achievable ratings.

In addition to the Methodology itself, Scope has published the Country Addendums on four countries (Italy, Spain, United Kingdom and France).

Scope invites issuers, investors and other interested parties to comment on the methodology by 1st of July 2024 as part of the agency’s commitment to transparency and an open dialogue with market participants.

Please send your comments to consultation@scoperatings.com

Scope will review and publish the content of written responses in accordance with regulatory requirements, unless the respondent has explicitly requested confidentiality, and will publish the final version of the methodology thereafter.