A Comparison of Japanese, Australian, Dutch and UK RMBS and Mortgage Markets copy

SPECIAL COMMENT
RESIDENTIAL MBS
Table of Contents:
SUMMARY 1
WE NOTE KEY DIFFERENCES AMONG
MARKETS 1
I. MORTGAGES 4
PRIME TRANSACTION COLLATERAL
CHARACTERISTICS 4
THIRD-PARTY CREDIT PROTECTION IS
WIDELY USED IN JAPAN, AUSTRALIA AND
THE NETHERLANDS 6
PERFORMANCE COMPARISONS 7
II. NOTES 9
RMBS STRUCTURAL FEATURES ARE
SIMPLER IN JAPAN, AUSTRALIA AND THE
NETHERLANDS 9
AUSTRALIA 10
PAYMENT RISK AND EXTENSION RISK 13
III. SET-OFF AND COUNTERPARTY RISK 13
SET-OFF RISK 13
COUNTERPARTY RISK 16
BACK-UP SERVICER RISK 16
SWAP COUNTERPARTY RISK 17
IV. DOWNGRADE DRIVERS 18
APPENDIX A 19
MOODY’S RELATED RESEARCH 34
Analyst Contacts:
SYDNEY +612.9270.8199
Arthur Karabatsos +612.9270.8160
Vice President - Senior Analyst
arthur.karabatsos@moodys.com
LONDON +44.20.7772.5454
Jonathan Livingstone +44.20.7772.5520
jonathan.livingstone@moodys.com
Annabel Schaafsma +44.20.7772.8761
Associate Managing Director
annabel.schaafsma@moodys.com
TOKYO +81.3.5408.4100
Hiroyuki Kato +81.3.5408.4261
hiroyuki.kato@moodys.com
» contacts continued on the last page
SEPTEMBER 24, 2013
AComparisonofJapanese,Australian,
DutchandUKRMBSandMortgageMarkets
Summary
Following increased interest from investors in Australian, Dutch and UK residential
mortgage-backed securities (RMBS), we produced this report to compare and provide
insight into these different markets. We have expanded on the report “A Primer:
Comparing Japanese, Australian, Dutch and UK RMBS and Mortgage Markets,” which
was published in March 2013.
We Note Key Differences Among Markets
» Receivable Characteristics Vary Among Countries: Dutch and UK interest-only
(IO) loans expose investors to bullet repayment risk because borrowers pay only the
interest portion for the entire life of the loan (30 years). Conversely, Japanese and
Australian IO loans do not expose the borrower to bullet repayment risk because
they are typically IO for less than five years (in Australia) or one year (in Japan),
before fully amortising.
» Lender’s Mortgage Insurance Mitigates Credit Risk in Australian and Dutch
RMBS: Most Australian RMBS loans have lenders mortgage insurance (LMI), with
the two largest providers being private companies rated Aa3 and A1. In the
Netherlands, NHG Guarantee, backed by a Aaa-rated government-sponsored entity,
provides LMI to loans that meet certain criteria. Typically, LMI covers up to 30%
of the loans in the Dutch mortgage market. Unlike Australian LMI, Dutch LMI
coverage amortises on an annuity basis. UK lenders do not use LMI, while lenders
in Japan obtain a guarantee, generally from a subsidiary. We do not usually rate the
subsidiary.
» Set-Off Risk Is Most Significant in Dutch RMBS: Set-off risk is more significant in
Dutch RMBS compared to other markets because the Dutch tax law encourages the
use of IO mortgages in combination with repayment vehicles, which are usually
savings or insurance policies provided by an insurance company. If the insurer
becomes bankrupt, the borrower can set off the value of the policy against the
outstanding amount of the mortgage loan (insurance set-off risk). Over time, this
risk increases because the value of the policy increases.
» Note Types Also Vary Between Countries: Dutch and UK master trusts issue soft
bullets, as opposed to the Australian and Japanese standalone structures, which
typically issue straight pass-through notes. However, soft bullets are not immune to
prepayment or extension risk because they rely on the continued support of the
originator to supply mortgages to the trust. This supply ensures the generation of
sufficient principal to redeem the notes on their scheduled maturity dates.

2 SEPTEMBER 24, 2013 SPECIAL COMMENT: A COMPARISON OF JAPANESE, AUSTRALIAN, DUTCH AND UK RMBS AND MORTGAGE MARKETS
RESIDENTIAL MBS
» Credit Profiles of UK and Dutch Master Trusts Are More Volatile: UK and Dutch master
trust portfolios change on a regular basis as the seller adds new loans to the portfolio. The
portfolio can lose the benefits of more seasoned borrowers building equity1
in their homes
over time. While performance criteria and other tests will mitigate the risk of the new loans
decreasing the overall credit quality of the portfolio, it is possible to change individual
portfolio characteristics, such as, geographical concentration and the proportion of high loan-
to-value (LTV) loans. Typically, lenders do not add new loans to Australian and Japanese
portfolios; their static nature leaves them more vulnerable than dynamic portfolios to the
performance of any one vintage of loans.
» Operational Risks Are Lower in Australia and Japan: Australian and Japanese RMBS deals
have more certainty in terms of Back-Up Servicer (BUS) arrangements because they identify
from closing which entity is legally liable to perform the BUS role. Conversely, Dutch and
UK transactions typically rely on the credit strength of the servicer to avoid the need for a
BUS. For lower or non-rated servicers, however, Dutch and UK RMBS put additional
structural features in place, such as (1) pre-appointing a BUS, or requiring the appointment
of one following a trigger event; or (2) appointing a facilitator, who uses commercially
reasonable efforts to find a replacement servicer on substantially the same terms as the
existing servicer.
» We highlight key differences, and compare and contrast mortgage loans, notes, set-off and
counterparty risk, and downgrade drivers between the different markets.
» We explain in detail the workings of UK master trusts. The guide compares the four markets
based on collateral characteristics and underwriting, LMI, housing, income and population,
RMBS performance, and RMBS structural features.
» Exhibit 1 illustrates various credit risk relativities between the different RMBS markets.
1
The more equity a borrower has in their home, the less likely they will default.

RESIDENTIAL MBS
EXHIBIT 1
Credit Risk Relativities Between Different RMBS Markets
High Medium Low
Collateral Profile Risk
Japan 
Australia 
Netherlands 
UK 
Prepayment Risk
Japan 
Australia 
Netherlands 
UK 
Set-off Risk
Japan 
Australia 
Netherlands 
UK 
Back-up Servicer Risk
Japan 
Australia 
Netherlands 
UK 
Swap Counterparty Risk
Japan 
Australia 
Netherlands 
UK 
LTV
Japan 
Australia 
Netherlands 
UK 
Mortgage Product Complexity
Japan 
Australia 
Netherlands 
UK 

RESIDENTIAL MBS
I. Mortgages
Prime Transaction Collateral Characteristics
Japanese and Dutch transactions are the most conservative.
Japan
Japanese prime RMBS deals are very conservative; their portfolios contain only owner-occupied,
full-documentation mortgage loans that are made mostly to full-time employees of medium-sized
or large corporations. The lending criteria of the large banks focus less on LTV and more on an
applicant’s occupation, income and income sustainability.2
The weighted average LTV (WALTV)
of new deals is typically between 80% and 95%, although it is common for borrowers to borrow
the full purchase price of a home.
The financial strength or credit quality of an applicant’s employer determines income
sustainability. Lenders consider the income stability of permanent employees of medium-sized or
large companies to be robust because a combination of Japan’s corporate culture and labour laws
makes it difficult to lay off such employees. In addition, Japanese banks often securitise mortgage
pools that consist of only fixed-rate mortgages.
Japanese lenders do not rely heavily on recoveries from underlying properties in the event of a
default because of the drop in real estate prices in the 1990s and continued house price declines.
Risk-Based Pricing: Lenders generally charge all of their owner-occupied borrowers the same
interest rate irrespective of their LTV ratios.
Australia
Australian prime RMBS portfolios consist of a much broader range of loan characteristics than those
of the other markets. They can contain owner-occupied and investment3
loans to either full-time
employees or self-employed borrowers, full documentation mortgages and low documentation4
loans,
and loans with short-term fixed and variable rates.
Similar to the Dutch market, Australian mortgage loans can consist of multiple loan parts. Each loan
part can have different characteristics, such as amortisation type and an interest reset period. A prime
mortgage generally is one that meets the underwriting criteria for LMI policies, which typically
exclude borrowers with an adverse credit history. Almost all loans in Australian RMBS deals are
covered by an LMI policy.
Australian investment mortgages are riskier than owner-occupied mortgages and are also a
mainstream product provided by prime lenders. About 30% of Australian mortgages are for
investment purposes compared with 2% in Japan.
The WALTV of a new deal is typically 60%-65%.
Risked-Based Pricing: Australian mortgages have no risk-based pricing. All borrowers pay the same
rate of interest regardless of LTV, loan amount or occupancy type.
The Netherlands
Dutch deals are backed by owner-occupied loans only. These deals have a large proportion of fixed-
rate loans (typically between five and 10 years in length), a high proportion of IO loans and high
LTVs. The typical WALTV of a new deal is around 90%, based on the property’s foreclosure value.
Dutch mortgage loans can consist of multiple loan parts with different characteristics, such as
amortisation types and interest reset periods. Because of the tax deductibility of mortgage interest, a
2
See “Japanese mortgage delinquencies have higher correlation with self employment status than high LTV,” July 2012.
3
Investment mortgages are the Australian equivalent of UK buy-to-let (BTL) mortgages.
4
A mortgage where the lender does not require the applicant to provide full documented proof of income.

RESIDENTIAL MBS
typical loan consists of a pure IO loan part with no repayment terms for its principal portion and
one or more IO loan parts which benefit from indirect amortisation through the accumulation of
principal in separate repayment vehicles.
By removing tax deductibility for IO loans, the new tax deductibility rules explained below
positively affect new RMBS transactions since non-amortising mortgage products directly affect
loss given default. Borrowers’ willingness to pay mortgage instalments will increase with the rising
equity levels, and back-ended mortgage defaults will decrease because of reduced balloon payments
at maturity.
Revised regulations5
will likely reduce the levels of both IO loans and LTVs. The Dutch Code of
Conduct unifies lenders’ underwriting practices because it is very prescriptive on a number of
underwriting criteria, such as maximum LTV and affordability testing. Affordability testing
incorporates standard inputs for living expenses, acceptable income and interest rate stresses.
Risked-Based Pricing: While there is generally no risk-based pricing, loans with a National
Mortgage Guarantee (NHG)6
receive an interest rate reduction of 0.40 to 0.50 percentage points.
UK
A significant proportion of UK prime RMBS use a master trust structure containing owner-
occupied, full documentation or fast-track7
mortgages to either full-time employed or self-
employed borrowers. The proportion of non-prime collateral in master trusts has declined since the
credit crunch.
The proportion of IO loans will decrease in UK pools. In October 2012, the Mortgage Market
Review (MMR) published a set of new rules, including regulations on IO lending, effective from
April 2014. 8
In anticipation of the new framework, lenders have already changed their
underwriting procedures. With some lenders withdrawing from the IO segment entirely and others
beginning to add greater amounts of more recent vintages, which have higher levels of repayment
loans, the proportion of IO loans in master trusts is decreasing.
The MMR includes a requirement for lenders to perform an affordability assessment to ensure a
credible repayment strategy. The new rules are not, however, prescriptive with lenders able to take
into account individual circumstances, such as allowing the sale of the mortgaged property where
such a course of action is a credible strategy.
From April 2014, the MMR will also introduce minimum standards to assess affordability against
interest rate increases. The new stressed affordability assessment considers market expectations for
interest rates over the next five years, subject to a minimum stress of 1% in flat-rate scenarios.
Lenders will be required to take into account consumers’ ability to manage their expenditures once
they take on a mortgage.
WALTV is typically around 60%-65%.
Risk-Based Pricing: The use of risk-based pricing by lenders is widespread and determined by LTV
as well as other risk characteristics, such as whether the loan is backed by an investment property.
Currently, high LTV borrowers are paying around 2 percentage points more than those with LTVs
that are less than 75%.
5
See “Dutch RMBS: New Coalition’s Proposed Agreement Reduces Leverage While Affordability Remains Largely Unaffected,” November 2012.
6
LMI backed by a government sponsored entity.
7
Fast track loans are those originated without full income checking, but which are not marketed as having limited income checks.
8
See “Moody’s: New FSA MMR rules will benefit UK prime RMBS in the long term,” November 2012.

RESIDENTIAL MBS
Third-Party Credit Protection Is Widely Used in Japan, Australia and the
Netherlands
In Japan, all loans are covered by a guarantee typically provided by the lender’s subsidiary to
mitigate credit risk. Both Australian and the Dutch deals use LMI, but the type of provider and
coverage differs.
In Australia, most RMBS loans have LMI provided by private companies covering the full amount
of outstanding principal. In the Dutch mortgage market, about 30% of the loans are covered by
LMI provided by a government entity. The coverage amortises on an annual basis. UK lenders do
not use any third-party protection.
Japan Obtains Subsidiary Guarantees for All Loans
Private-sector financial institutions obtain a guarantee, generally from a subsidiary, for all loans
they originate. If a borrower defaults, the issuer benefits from the guarantor’s payment of
outstanding principal and accrued interest.
While we do not usually rate guarantors, we do rate their parent banks (Aa-Baa) in many instances.
While the issuer benefits from the guarantee, the structure of many deals is such that the
subordination provided by the unrated junior note is sufficient for the senior notes to obtain a
Aaa (sf) rating without any benefit from the guarantee.
Australia – LMI
An LMI policy covers the lender if -- upon default of a borrower -- there is unpaid principal or
interest after applying the sales proceeds of the homes. LMI is effective for the duration of
mortgages and covers the lender for 100% of the outstanding principal amount, accrued interest,
and reasonable expenses involved in enforcing the mortgage, as well as for marketing and selling the
property.
Impact of LMI on RMBS notes is decreasing:9
The credit quality of the notes reflects the credit
quality of the underlying mortgages and consideration of the credit quality of the LMI provider.
» For the senior notes, consideration of the credit quality of the LMI provider means that the
notes can achieve a Aaa (sf) rating with less subordination provided by the mezzanine and
junior notes, than without LMI.
» Since the 2008-09 global financial crisis, the structures of most senior notes do not give
benefit to the credit quality of the LMI provider, and hence their Aaa (sf) credit qualities are
independent of the LMI provider. This is done to prevent exposing the senior note’s rating
to the volatility in the mortgage insurer’s rating.
» Mezzanine notes, which we typically rate at Aaa (sf) or Aa1 (sf), rely on the LMI provider for
their credit quality because LMI provides the first level of credit support.
» The credit qualities and ratings of junior notes are highly reliant on the credit quality of the
mortgage insurer because such notes are directly exposed to losses not covered by LMI.
Collateral losses not covered by LMI will translate into losses on the junior notes.
» Rating downgrades have been almost entirely restricted to junior notes owing to the
downgrades of mortgage insurers, rather than to the poor performance of mortgages.
9
See “Approach for Incorporating Lender’s Mortgage Insurance in Australian RMBS,” October 2012.

RESIDENTIAL MBS
The Netherlands – National Mortgage Guarantee (NHG) guarantee
The Nationale Hypotheek Garantie (NHG) guarantee may cover Dutch loans, compensating the
lender after the end of the foreclosure process for a defaulted borrower. However, the NHG
guarantee amortises on a 30-year annuity repayment basis and, therefore, typically does not match
the actual amortisation profile of the mortgage loan. This mismatch creates a coverage gap over
time and leads to credit risk for IO loan parts. However, the risk is mitigated as most defaults occur
in the first few years after origination.
Exhibit 2 illustrates how the LMI coverage gap increases over time with IO loans because the LMI
coverage amortises on an annual basis, while the loan amount remains unchanged.
EXHIBIT 2
Dutch LMI Coverage
* A borrower’s IO loan can only be based on a LTV of 50%. The remainder will amortise.
SOURCE: Moody’s Investors Service
The borrower pays the tax-deductible NHG fee in a single up-front payment at origination.
Impact of NHG guarantee on RMBS notes:10
We factor the NHG guarantee into our ratings by
taking it into account in our assessment of the credit quality of the pool; it incorporates (1) the
rating of Stichting Waarborgfonds Eigen Woningen (WEW) (Aaa); (2) the amortisation mismatch
between the guarantee and underlying mortgage loan; and (3) the rescission rate. As a result, the
credit enhancement for NHG loans is lower than that of non-guaranteed mortgages
Performance Comparisons
Exhibit 3 charts the 60-days plus delinquencies of the Japanese, Australian, Dutch and UK
markets. Even when accounting for buy-backs, Japan shows the lowest delinquencies. The UK has
the highest delinquencies. Australia and the Netherlands have about the same level of
delinquencies.
10
See “Moody’s Updated Approach to NHG Mortgages in Rating Dutch RMBS”, 17 March 2009
Time
Euros
Loan Balance - Interest Only Loan*
Dutch LMI coverage amortises on an annual basis
LMI Coverage
Gap

RESIDENTIAL MBS
EXHIBIT 3
Japanese, Australian, Dutch, and UK RMBS Delinquencies
Source: Moody’s Investors Service’s Global Structured Finance Collateral Performance Review (4 December 2012); Moody’s Investors Service’s UK
Prime RMBS Indices (19 October 2012)
We usually compare mortgage performance between jurisdictions on a same-seasoning basis with
static portfolios. However, UK and Dutch master trusts are revolving, making like-for-like
comparisons less straightforward.
In Japan, buy-back requirements, coupled with the moratorium law, also keep mortgage
performance artificially low. Many Japanese RMBS deals require sellers to buy back at par all
modified mortgages.
Modified mortgages include11
those with temporarily suspended principal repayments (typically for
up to one year) or extended mortgage terms, which reduce the repayment burden on the borrower.
The number of buy-backs has increased dramatically with the introduction of the moratorium law
in December 2009, which encourages lenders to modify a mortgage when asked by a financially
troubled borrower. The law expired in March 2013 but lenders continue to modify mortgages,
because the governmental agency supervising financial institutions, Japan Financial Services Agency
requested that they continue to do so.
11
Modified mortgages do not include only “the mortgages modified for financially troubled obligors,” but also include the mortgages modified for obligors with good
credit (for example, by lowering interest rates) so that they do not refinance their mortgages with other banks.
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
%ofOutstandingBalance
Japan Repurchase Rate Japan Conforming RMBS 60 plus delinquencies
Australian Prime RMBS 60 plus delinquencies Dutch RMBS 60 plus delinquencies
UK Prime RMBS 60 plus delinquencies

RESIDENTIAL MBS
II. Notes
RMBS Structural Features Are Simpler in Japan, Australia and the Netherlands
Japanese, Australian and Dutch RMBS deals use relatively simple standalone structures that issue
pass-through notes, meaning that payments received from the underlying mortgages pass straight
through to investors. The structures have a single static portfolio of mortgages backing each new
issuance of notes. The issuers typically redeem notes in a sequential order.
Prime UK deals are generally master trusts with dynamic pools, which means that new loans can
continually be added, subject to performance triggers. Master trusts allow for the programmatic
issuance of notes similar to medium-term note programmes, allowing for quicker execution, in
addition to reduced documentation and costs. Master trusts generally contain controlled
amortisation, and soft bullet and pass-through notes. One Dutch originator uses master trust
structures that are a hybrid between the UK master trust and the standalone structures. Dutch
master trusts also have single dynamic portfolios supporting many issuances but, unlike the UK, do
not have seller shares.
Standalone Structures – Japan, Australia and the Netherlands
Although Japan, Australia and the Netherlands all use simple standalone structures, differences exist
in the typical number of tranches and principal and interest payment structures.
Japan
Japanese deals typically have one or two Aaa (sf)-rated senior notes and one unrated junior note. If
there are two senior notes, the principal payment can be either pro-rata or sequential between them,
as illustrated in Exhibit 4. In pro-rata deals, one of the senior notes receives a fixed interest rate and
the other receives a floating interest rate.
The junior note receives no interest and is always unrated, and is held by the originator. A junior
note receives surplus income (excess spread). In many cases, following the seller’s default, the senior
notes receive the excess spread.

RESIDENTIAL MBS
EXHIBIT 4
Waterfall and Loss Allocation - Japan
Source: Moody’s Investors Service
Australia
Australian deals typically issue two or three different classes of notes. Exhibit 5 illustrates a typical
three-note issuance. Initially, the collection flows through the principal sequentially; after which the
deal switches to paying the principal pro rata upon specific events, such as delinquencies remaining
below a certain level, and a doubling of the relative size of the subordinate notes relative to the
mezzanine and junior notes since closing.
EXHIBIT 5
Waterfall and Loss Allocation - Australia
Source Moody’s Investors Service
SeniorAaa(sf)
Floating Rate
WAL ≈ 7 yrs
SeniorAaa(sf)
Fixed Rate
WAL ≈ 7 yrs
Unrated Junior Note
Unrated
Junior Note
SeniorAaa(sf)
Fixed Rate
WAL ≈ 2 yrs
SeniorAaa(sf)
Fixed Rate
WAL ≈ 10 yrs
ExcessSpread
Mortgage Guarantee (if any)
Sequential Pay
(Principal & Interest)
Pro Rata
(Principal)
LossAllocation
Principal&Interest
ExcessSpread
Mortgage
Guarantee (if any)
LendersMortgage
Insurance
SeniorAaa(sf)
Floating Rate
MezzanineAa2(sf) –Aa1(sf)
Floating Rate
Junior Aa3(sf) – A1(sf)
Floating Rate
ExcessSpread
LossAllocation
SequentialorProRataPrincipal
SequentialInterest

RESIDENTIAL MBS
Some Australian deals12
have used a variety of techniques – such as, remarketing of notes and
repurchasing agreements -- to create soft bullets without the use of date-based calls.
The Netherlands
Exhibit 6 illustrates a typical Dutch standalone structure, which means that it incorporates the
elements common to most Dutch RMBS transactions. The typical structure includes a number of
classes of notes and commonly contains two Class A subclasses: Class A1 and Class A2. Class A1
and Class A2 receive the principal sequentially with interest paid pro rata, and then all other classes
in order of priority sequentially. In general, the Class A notes receive a floating interest rate and the
junior notes receive either a fixed or floating interest rate.
EXHIBIT 6
Waterfall and Loss Allocation – the Netherlands
Source: Moody’s Investors Service
Master Trusts – the Netherlands and UK
Why master trusts?: The term “master trust” refers to a structure that allows ongoing issuance,
similar to a medium-term note programme, enabling the issuer to quickly issue a large volume of
notes. One of the main benefits of a master trust is its ability to manage principal payments to
investors via bullet and scheduled amortisation notes. The presence of these note types -- in
combination with a seller share and deal triggers -- reduces prepayment risk.
Master trusts reduce issuance costs and increase the speed of execution because the issuer uses the
same underlying documents, mortgages and structure for each issuance. Additionally, the structural
features in master trusts allow subordinated notes to have earlier expected maturity dates than the
corresponding senior notes.
In the UK, master trusts are the largest part of the RMBS market, accounting for 80.6% of all
outstanding issuances and with most large lenders using them. To date, only one Dutch lender,
12
Torrens, 2010-3; Medallion, 2011-1; Swan, 2010-2; Interstar, 2006-2G; NAB, 2011-1.

RESIDENTIAL MBS
ABN AMRO,13
has adopted a master trust. As such, master trusts in the Netherlands only represent
25% of the total outstanding issuances.14
The Netherlands
Typical Dutch master trusts are hybrids between the UK master trust structures and single
standalone Australian/Japanese deals. While Dutch master trusts have a single dynamic portfolio
supporting many issuances, they do not have the concept of a seller share.15
As with UK master trust structures, the typical Dutch master trust has a two-tier special purpose
vehicle (SPV) structure, an asset purchaser and an issuer. The seller disposes of a portfolio of
mortgage loans to the asset purchasers. The latter funds the purchase through an intercompany
loan from the issuer. The master issuer can issue new notes in the future, which the same pool of
assets will back.
The transaction structure incorporates some credit enhancement features (for example,
subordination among classes of notes) at the issuer level and other features (such as excess spread) at
the asset purchaser level.
Structures issue soft bullet notes as well as pass-through notes. The issuer can redeem a soft bullet
note at the scheduled maturity date through (1) the issuance of new notes; (2) the (partial)
repurchase of the pool by the originators; or (3) the (partial) sale of the pool to a third party.
Unlike UK master trusts, there is no accumulation period within the structure to repay the soft
bullet notes on their scheduled maturity date.
UK
Master trusts are the most common structure in UK RMBS, accounting for 80.6% of all UK Prime
RMBS issuances. Smaller lenders generally securitise buy-to-let (BTL) mortgages and non-prime
mortgages, using distinct standalone SPVs, often with closed-end pools similar to Australian,
Dutch and Japanese RMBS. UK master trust structures have a single portfolio of mortgages
supporting multiple issuances, and differ in three key ways from deals in Australia, the Netherlands
and Japan.
First, the mortgage portfolio in UK master trusts is dynamic and can change on a monthly basis
owing to the seller adding new mortgages to the portfolio. Unlike static portfolios, dynamic
portfolios may lose the benefits of seasoning16
and increasing borrower equity.17
However, the diversification of loans in dynamic portfolios is often greater, and therefore less
vulnerable to the performance of any one vintage. Additionally, the Moody’s Portfolio Variation18
or LTV tests mitigate the risks of dynamic portfolios as they only permit assets to be added, should
the credit risk remain within pre-determined limits.19
Second, UK master trusts have a more complicated system of rules governing payment waterfalls.
Cash flow allocations depend on a number of different factors, which change over time, including
delinquency and repayment rates, Principal Deficiency Ledger (PDL) levels, the seller share, trust
size and servicer insolvency.
Finally, we can see a variety of different notes; bullet, scheduled amortisation and pass-through.
The deals incorporate structural features that allow timely payment of bullet notes. These features
13
The five ABN AMRO master trusts are Beluga Master Issuer BV, Dolphin Master Issuer BV, Fishbowl Master Issuer BV, Goldfish Master Issuer B.V. and
Oceanarium Master Issuer BV.
14
Source: Moody’s Dutch Prime and NHG RMBS Indices, 2013 Q2
15
In UK MT structures the sellers retain an interest in the pool of mortgages sold to the MT, known as the “seller share.”
16
Seasoning refers to the number of months since the borrower first took out the mortgage. The longer a mortgage performs, the less likely it is to go delinquent. We
view seasoning positively when determining the credit risk of a mortgage.
17
The more equity a borrower has in their home the less likely they will be to default.
18
The MPV Test is an asset scoring model similar to the UK MILAN model as Moody’s assigns a default frequency and severity following default for each loan based
upon its LTV and then adjusts for adverse characteristics. The MPV Test is calibrated at closing and so when it is run following close at a pool addition date the
MPV Test value is a relative indicator of the trust credit quality.
19
See “Substitution Criteria in EMEA RMBS Revolving Deals”, September 2009.

RESIDENTIAL MBS
include cash accumulation periods and the use of the reserve fund. A large seller share and trust size
can assist in making timely principal payments because more principal receipts, and not just
receipts based on the size of funding share, will be accumulated prior to the scheduled due date.
Payment Risk and Extension Risk
Prepayment Risk
Australian, Dutch and Japanese RMBS are pass-through structures,20
with principal payments from
mortgages passing directly to investors in order to gradually repay the notes. The maturity profile of
the notes is uncertain. Dutch RMBS structures typically include date based calls,21
which in
combination with the high concentration of IOs in the pools, provide investors with more certainty
on the note maturity profile. However, in Australian and Japanese RMBS structures, investors are
exposed to significant prepayment risk because borrowers can pay off their mortgage early, or make
unscheduled payments.
In the UK and Dutch master trusts, the issuance of bullet notes,22
controlled amortisation notes or
scheduled amortisation notes mitigates prepayment risk. Other than for hard bullet notes, the
payment of these notes to schedule is still normally contingent on the continued support of the
originator adding mortgages to the trust, so as to maintain the trust size and the seller share (in the
UK), thereby generating sufficient principal to redeem notes on their scheduled dates.
Extension Risk
Soft bullets controlled amortisation or scheduled amortisation notes issued by master trusts can
suffer from extension risk23
when the note is not redeemed on the expected maturity date. UK
master trusts have structural features that accumulate the principal prior to the expected payment
date. However, low principal payment rates -- as recently experienced due to the slower housing
market and tighter credit conditions – would mean that there may not be timely payment in the
absence of sponsor support.
Dutch master trust structures do not incorporate accumulation features so investors are more
reliant on the seller to re-issue new notes, or repurchase a portion of the mortgage pool to enable
the issuer to redeem the notes on the expected maturity date.
Extension risks often occur owing to reasons unrelated to asset performance, such as when a non-
asset trigger is breached. Such non-asset triggers include servicer interruption, or the addition of an
insufficient value of new mortgages to replace repaid mortgages, leading to the trust size or seller
share falling below minimum levels.
III. Set-Off and Counterparty Risk
Set-Off Risk
Set-off risk occurs when a borrower has the right to reduce the amount of money owed by the same
amount that the lender owes. In RMBS deals, deposit set-off risk potentially arises where a
borrower holds both a mortgage and deposit account with the same lender.
20
Some Australian issuers have eradicated prepayment risk by employing bespoke structuring methods to structure a soft bullet note.
21
Date based calls allow the issuer to call the notes after an appointed date.
22
A soft bullet is a note similar to a corporate bond (hard bullet), because to redeem the note, all the principal repayments to investors are viewed as single payments.
However, it is called a soft bullet because the issuer does not guarantee the final bullet payment on the expected maturity date. That said, issuers have paid the
majority of these securitisations on time. Failure to redeem the soft bullet on the expected maturity date will result in an increase in the note’s rate of interest. We
do not consider this to be an event of default.
23
See “UK RMBS Master Trusts: Extension Risk Remains Significant due to Low Principal Payment Rates”, May 2012.

RESIDENTIAL MBS
Deposit set-off can then occur on the insolvency of the lender when the borrower seeks to reduce
the amount they owe on their mortgage by the amount the lender owes under their deposit
accounts. However, the degree of risk and the nature of the mitigants vary by jurisdictions. In the
Netherlands, the issue of deposit set-off often does not arise because of the lack of mutuality. In
Japan and the UK, structural features mitigate the risk with cash reserves and minimum seller
shares, respectively, providing protection. In Australia, set-off waivers, triggers to break mutuality
and deposit insurance sufficiently mitigate deposit set-off risk.
Japan – Deposit Set-Off Risk
In Japan, many originators/issuers of RMBS are deposit-taking banks. Therefore, a mortgage
borrower can set off their mortgages -- equal to their deposits held with the bank -- following the
bank’s default. In Japanese RMBS deals, however, deposit insurance, cash reserves and additional
credit enhancement mitigate deposit set-off risk.
Deposit insurance: In principle, the Deposit Insurance Corporation of Japan (DICJ)24
insures
bank deposits up to a maximum of JPY10 million25
($100,000) plus accrued interest. After a bank
defaults, borrowers with deposits of less than JPY10 million have no incentive to set off because
deposit insurance fully covers their deposits. However, borrowers with deposits higher than JPY10
million may set off their mortgages against the uncovered portion of their deposits; the total
amount of deposits minus JPY10 million.
At the individual RMBS deal level, the following mitigants exist to offset deposit set-off risk:
» Cash reserve from closing: From the deal’s closing, the servicer monitors the amount of
borrowers’ deposits. The servicer calculates the maximum set-off exposure to deposits
exceeding JPY10 million. The deal sponsor will place that amount of cash into a reserve
account to mitigate deposit set-off risk.
» Cash reserve after credit breach: Some RMBS deals that do not monitor the level of
borrowers’ deposits from closing have bank rating triggers that, if breached, require the
establishment of a cash reserve as described above. A bank would breach its rating trigger if
its short-term rating were to become, for example, Prime-2 or less.
Australia – Deposit Set-Off Risk
Deposit set-off risk is an issue in Australian RMBS deals because the main issuers of RMBS are
authorised deposit-taking institutions (ADIs),26
which also hold deposits from the mortgage
borrower. The waiver of set-off and the breaking of mutuality enable ADIs, with their RMBS deals,
to proceed without requiring any additional support and sufficiently mitigates deposit set-off risk.
Waiver of set-off: Mortgage loan documents contain clauses where the borrower contractually
waives the right of set-off.
Breaking mutuality: Australian RMBS deals have triggers to break mutuality under certain
circumstances. These events include originator insolvency, a decline below a certain credit quality,
(typically below a Baa3 rating), or failure to transfer money to the trust within a predefined time.
When such events occur, the trustee will perfect its equitable interest in the mortgages, such that
the trustee transfers the legal title27
of the loans from the lender to the trustee, and hence breaks
mutuality.
Deposit insurance: In November 2008, the Australian government created a deposit insurance
scheme called the Australian Government Guarantee Scheme for Large Deposits and Wholesale
24
The DICJ (est. 1 July 1971) is the administrative organ of Japan’s deposit insurance system under the Deposit Insurance Law. The current share of the Japanese
government stands at around 95% of total capital. The DICJ’s supervising authorities are the Ministry of Finance and the Financial Services Agency.
25
The DICJ website [http://www.dic.go.jp/english/index.html].
26
The Australian government authorises ADIs to take deposits under the Banking Act 1959. These institutions include banks, building societies and credit unions.
27
The trustee of the SPV holds an irrevocable title perfection power of attorney which enables it to perfect the title quickly.

RESIDENTIAL MBS
Funding.28
Under the scheme, the government guarantees deposit balances of up to and including
AUD250,000 per customer, per institution. However, borrowers with deposits exceeding
AUD250,000 may still set off their mortgages against the uncovered portion of their deposits (the
total amount of a deposit minus AUD250,000).
The Netherlands – Deposit and Insurance Set-Off Risk
As in the UK and other jurisdictions in Europe, the Netherlands has a Deposit Guarantee Scheme
(DGS) in place to protect individuals from losing their savings if a deposit-taking institution
becomes insolvent. The compensation limit under the DGS is €100,000 and all natural persons as
well as certain small legal entities are eligible for compensation. Each compensation payment is
based on the claimant’s gross claim, with no deduction with respect to liabilities owned by the
depositor.29
Since the seller does not notify borrowers of the sale of the mortgage loans to the issuer, where the
lender and the deposit-taking institution are the same legal entity, deposit set-off risk may be an
issue for the RMBS deal for any deposit amounts exceeding the DGS limit. We incorporate this
deposit set-off risk into our cash flow modelling of the deal.
However, very few Dutch deals have deposit set-off risk because the lender often originates
mortgages out of a mortgage bank or entity that is separately incorporated from the deposit-taking
institution.
Insurance policy set-off risk: Because the value of the repayment vehicle starts at zero and
accumulates up to the loan amount (in full or in part) over 30 years, insurance policy set-off risk in
Dutch RMBS deals increases over time. The recent change in tax deductibility rules – which
requires all new mortgages to have annuity repayment structures -- will phase out IO loans twinned
with insurance products, ultimately reducing insurance policy set-off risk in RMBS deals.
Where the borrower accumulates funds in a bank savings product, a sub-participation agreement
(whereby policy provider passes funds on to the originator as if it were an annuity repayment)
typically mitigates set-off risk in RMBS structures.
UK – Deposit and Other Set-Off Risk30
The minimum seller share incorporates a component to mitigate deposit set-off risk by taking into
account the level of deposits from the originator. To de-link this risk from the rating of the
originator, following the breach of a rating trigger, the amount is sometimes recalculated.
Under English law, obligors are able to set off deposits held with an insolvent originator against
payments that they owe under securitised receivables. However, an issuer’s exposure to set-off is
substantially reduced where obligors can claim compensation under the Financial Services
Compensation Scheme (FSCS). This is because an obligor will not assert set-off in respect of
deposits for which they have received a compensation payment.
Where the FSCS does not fully compensate an obligor -- for instance, where their deposits exceed
the £85,000 FSCS limit -- then they may set off the uncompensated portion of their deposits
against the master trust.
Other set-off risk: If an originator becomes insolvent, a borrower may not be able to draw down on
the flexible features on their mortgage loan and may attempt to set off the extra cost of accessing
funds. To mitigate against this risk, the minimum seller share generally includes an amount equal
to 24% of the flexible draw capacity.
28
Australian government website, http://www.guaranteescheme.gov.au/
29
Initially the Dutch Central Bank’s guidance was to determine the payout under the DGS after setting off any claims the deposit-taking institution had on the
borrower. This guidance has recently changed and we are proposing to change our methodology accordingly in line with other European jurisdictions. See
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF265743
30
See “Moody’s Approach to Quantifying Set-off Risk for Securitisation and Covered Bonds Transactions Originated by UK Deposit-Taking Institutions,” May
2012.

RESIDENTIAL MBS
Counterparty Risk
The two major areas of counterparty risk that we compared between the regions are back-up
servicer (BUS) risk and swap counterparty risk.
Back-Up Servicer Risk
Compared to Australian and Japanese deals, Dutch and UK deals are more vulnerable to BUS risk
following a servicer disruption as they do not have the responsibility of servicing or facilitating a
transfer.
Japan
In Japan, the asset trustee is primarily responsible for servicing in accordance with Japan’s Trust
Law. Under the deal agreements, the asset trustee delegates the servicing to the servicer. If the
servicer needs replacing, then the asset trustee is obligated to service the mortgage portfolio, or look
for a substitute servicer. Many Japanese RMBS issued by regional banks have a BUS at closing,
though many RMBS issued by the major banks, and those rated in Aa (sf) range, do not.
Australia
Australian deals require the issuing trustee in all deals to perform the BUS function, even for highly
rated major banks. Although the trustees act in the capacity of a “cold” back-up and have the
option to outsource the servicing to a third party, they are proactive in terms of gaining an
understanding of the client’s operations as well as a preliminary understanding of the logistics of
stepping into the BUS role.
Increasingly in Australian deals, we are witnessing “warm” BUS arrangements, whereby the trustee
conducts a more thorough operational review, identifying key people, bank accounts and service
providers, as well as developing a plan by which they can swiftly transfer the BUS role in a distressed
scenario. While warm back-up clients tend to be unrated non-banks, a few are rated banks.
The Netherlands
Standard Dutch deals do not identify a BUS at closing. Upon the default of the servicer, the issuer
and trustee must facilitate servicer replacement, using their best efforts. When a servicer’s rating
does not exceed, or is not equal to A3, the deal typically incorporates BUS replacement triggers and
BUS facilitator arrangements.
In a number of deals, a third-party servicer (Stater Nederland N.V. or Quion Groep B.V.)
participates in the deal at closing, wherein the servicer sub-contracts out certain services to this
third party.
UK
UK RMBS master trust deals are similar to standard Dutch deals in that they do not identify a
BUS at closing. Instead, the master trust deals rely on the credit strength of the servicer. The
trustees have a legal responsibility to ensure continued servicing of the mortgages.
Some UK RMBS deals also appoint a BUS facilitator at closing, or upon the servicer being rated
below A3. The BUS facilitator’s role is to find a replacement servicer, if the need arises, using
reasonable efforts.31
In the UK, there is a third-party servicing market with a strong history of
transfers.
31
See “The Role of Back-up Servicer Facilitators in European ABS and RMBS Explained,” 20 March 2012.

RESIDENTIAL MBS
Swap Counterparty Risk
Compared to Japanese deals, Australian, Dutch and UK deals have greater counterparty risk
because of the presence of entities to hedge swap risks.
Japan
Japanese deals typically have no swap counterparties because (1) interest rate risk does not affect
these deals (the deals receive a fixed rate of interest from the mortgages and pay out a lower fixed
interest rate to the RMBS notes); or (2) sufficient over-collateralisation to cover negative carry
mitigates any potential interest rate risk.
Japanese deals also only issue notes in their domestic currency, thereby removing the need for
foreign exchange swap counterparties.
Australia
In Australia, unlike many other mortgage markets charging floating interest rates, the lender does
not tie the rate to an index, such as the London Interbank Offered Rate (LIBOR). Instead, the
lender sets the floating rate at their sole discretion, and which is referred to as a Discretionary
Variable Rate (DVR). This exposes the deal to basis risk because the DVR could be set at a rate
lower than that paid to the notes.
To mitigate this basis risk, most RMBS deals carry a basis swap32
to hedge any rate mismatches
between the DVR charged on the mortgages and the floating-rate obligations on the notes. If the
swap terminates, the lender must set the DVR at a sufficient level to ensure that the deal can pay
all the expenses of the deal, including the interest on the notes, when due. We refer to this level as
the threshold rate. The lender typically adds an additional 0.20-0.25 percentage points to the
threshold rate as a buffer for any enforceable expenses.
The Netherlands
Dutch swaps are valuable to the deal for two reasons. Firstly, they mitigate the interest rate mismatch
between the long-term fixed rate received from the underlying mortgages and the floating interest
rate due under the notes. Secondly, the swaps typically include a net excess spread, whereby the
issuer deducts costs (net of senior expenses and note costs) as well as a guaranteed excess spread (for
example, 50 basis points) from the payment made to the swap counterparty, thus providing another
level of credit enhancement to the issuer.
Furthermore, in the case of Dutch master trusts,33
swaps also provide liquidity support to the deal.
In this type of structure, the swap counterparty will always make its payments to the issuer under the
agreement. However, if interest payments from the underlying mortgages are not received from a
servicer, the issuer is not obligated to make its payment to the swap counterparty. This less standard
feature makes Dutch master trust swaps more difficult to transfer to a third party, if needed.
UK
UK RMBS master trusts contain basis rate swaps at the funding level and foreign exchange swaps at
the issuer level.
At the funding level, the swaps convert the revenue received from the trust -- which is a mixture of
fixed, BBR-linked and SVR-linked rates -- to LIBOR plus a margin.
At the issuer level, the relevant swap counterparty exchanges non-GBP note amounts from GBP
into the relevant note currency.
33
ABN Amro is the only bank providing RMBS master trusts in the Netherlands.

RESIDENTIAL MBS
IV. Downgrade Drivers
Generally, a shared downgrade driver in Japan, Australia and the Netherlands has been due to how
we assess the benefits of a third-party guarantee and LMI. In Australia, downgrades were largely
restricted to the junior notes and some mezzanine notes, while in Japan and the Netherlands, many
senior notes -- that were rated Aaa (sf) -- have been downgraded.
Japan
Japanese RMBS have recorded some downgrades, mostly due to the downgrades of third parties,
such as mortgage guarantors. For example, we have downgraded some RMBS deals guaranteed by
Japan Housing Finance Agency (JHF); to Aa2 from Aaa in 2009, and again to Aa3 in 2011.
We only downgraded four deals in 2011 because of poor collateral performance. The RMBS sector
in Japan remains stable, reflecting the good performance of collateral mortgage pools.
Australia
In Australia, we have never downgraded a prime or non-conforming deal as a result of poor
performance of the underlying mortgages. Most of our downgrades have affected junior notes in
prime deals because of mortgage insurer downgrades, or the increased probability that a particular
LMI may deny or reduce a claim.34
The Netherlands
Dutch RMBS deals have performed strongly since they first debuted in 1999. This performance is
in line with our expectations because the Dutch market has traditionally showed lower delinquency
rates than its European peers and continues to do so. We have never downgraded Aaa (sf) notes
because of mortgage performance. However, we have downgraded some junior notes as a result of
underperformance.
In the past, we downgraded Aaa (sf) Dutch RMBS notes as a result of (1) a change in 2009 in how
we assess the benefit of the NHG guarantee;35
and (2) an originator bankruptcy36
in May 2011.
This bankruptcy resulted in due care claims, which argued that the originator had (1) originated
loans with excessively high LTVs and/or debt to income ratios; and/or (2) sold unnecessary or
inappropriately priced insurance products. The bankruptcy trustee compensated borrowers through
set-off against their outstanding loan balances.
UK
Over the past 14 years, we have not downgraded any UK RMBS master trust notes. In 2010,
however, we downgraded the Whinstone and Whinstone 2 synthetic deals (which reference the
Granite Master Trust reserve funds) because their subordinated positions exposed them to higher
delinquency levels and low LIBOR rates. We have a stable outlook for UK prime RMBS over the
next 12-18 months, and expect the outstanding notes of UK RMBS master trusts to show resilience
to any moderate deviation from this outlook.
We released a request for comment in July 2012 in which we requested market feedback on
potential changes to our rating implementation guidance for assessing linkage to swap
counterparties. If the revised rating implementation guidance is implemented as proposed, the
ratings on certain notes may be negatively affected; following a counterparty default, any shortfall
may be fully borne by the affected note, as opposed to being shared across all the notes of a given
class.37
34
See “Approach for Evaluating Lender’s Mortgage Insurance in Australian RMBS,” 19 October 2012.
35
See “Moody’s Updated Approach to NHG Mortgages in Rating Dutch RMBS,” 17 March 2009.
36
See “Moody’s Downgrades Dutch ABS/RMBS Chapel and Monastery Originated by DSB,” 31 May 2011.
37
See "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions: Request for Comment," 2 July 2012 and “Structural
Differences Can Raise UK RMBS Master Trust Exposure to FX Swap Counterparties,” 18 October 2012.

RESIDENTIAL MBS
Appendix A
UK Master Trusts
We have included this appendix to explain UK RMBS master trust structures as they are more
complex than the standalone RMBS seen in other markets.
Dynamic master trusts: UK RMBS master trusts differ from standalone securitisation
structures as notes issued at different times share the same mortgage pool.
The seller is able to add new mortgages to the trust and may do so in order to issue new notes,
or to maintain the minimum trust size, or minimum seller share.
Trust beneficiaries: The mortgage trustee acquires mortgages38
from the seller and, without
segregating them in any way (for example, by date of sale), holds them for the benefit of the
funding companies and seller. The issuer has exposure to the mortgages via the intercompany
loan. The issuer uses the interest and principal received by a funding company -- as a result of
its share in the trust -- to service the intercompany loan and, in turn, to pay the interest and
principal due on the notes.
The seller of the mortgages retains an interest in the portfolio as it is a beneficiary to the trust
via the seller share.
The seller and the funding companies are separate beneficiaries to the mortgages in proportion
to the size of their shares and do not have any rights or obligations to each other.
EXHIBIT 7
Typical RMBS Structure – UK
38
Trust property also includes capitalised interest, rights under insurance properties, and cash held due to payments by borrowers.
Seller
Trust
Property
Series 1
Class A
Class B
Class C
Transfer of loans
Funding
Issuer
Seller share
Funding Share
Servicer
Contribution
Principal and interest
on intercompany loan
Subscription proceeds
Series 2
Class A
Class B
Class C
Principal and interest
on the notesPrincipal and interest
on intercompany loan
Note
issue
proceeds
Basis rate hedging
and reserve fund
FX hedging

RESIDENTIAL MBS
Fluctuation of shares in the trust property: The Funding 1 share, Funding 2 share (if applicable)
and the seller share of the trust property will fluctuate, depending on a number of factors,
including:
» the allocation of principal receipts on the mortgages to funding companies and the seller
» losses arising on the mortgages
» the assignment of any new mortgages
» the acquisition by funding companies of part of the seller share due to a new issuance
» underpayments, payment holidays or flexible drawings by borrowers on their mortgages
EXHIBIT 8
Trust Structure
Cash flow and loss allocation: The cash manager allocates revenue receipts between the
beneficiaries in proportion to their shares. However, the cash manager allocates the principal to
funding, as opposed to the seller, if there are note repayment or accumulation requirements. In
addition, if there is a non-asset trigger breach -- due to, for example, seller insolvency, or minimum
seller share or trust size not being met -- then all notes will become due and payable. In this
situation, the seller will not receive any cash until there is either an asset trigger breach (that is, there
is a balance on the Class A PDL), or the funding share has been repaid. If an asset trigger breach
occurs, the cash manager allocates the principal receipts pro rata between funding and the seller.
The cash manager allocates the losses on the sale of repossessed properties between the seller and
funding on a pro-rata basis at the time the trust realises the losses. In the case where the seller share
pays down in advance of the funding share because notes are not due and payable, then the cash
manager will allocate more losses to funding. If, however, the issued notes are short-dated or
become so, as a result of the trust breaching a non-asset trigger, then funding will pay down in
priority to the seller, meaning that the seller will in effect act as credit enhancement to the deal.
Waterfalls and Loss Allocation
The cash manager allocates funds at three levels:
1. At the trust level, to distribute principal and interest between the seller and funding
2. At the funding level, to distribute interest and principal to the different tranches of
intercompany loans
3. At the issuer level, to make interest and principal payments on the notes
At the trust level, the cash manager always allocates revenue receipts pro rata between the seller and
funding
Class A
Class B
Class C
Mortgage
Portfolio
Seller Share
(GBP30)
Funding Share
(GBP70)
(GBP100)

RESIDENTIAL MBS
At the trust level, the cash manager allocates principal receipts as follows:
» If there is no trigger breach: the cash manager first allocates principal receipts to funding, if
notes are either within a cash accumulation period, or due and payable. The cash manager
allocates any excess to the seller
» If there is a non-asset trigger event breach, but no asset trigger breach: the cash manager
allocates all principal receipts to funding
» If there is an asset trigger breach: The cash manager allocates principal receipts pro rata
between funding and the seller
At the funding level, the cash manager, on behalf of funding, uses revenue receipts to pay senior
fees, and then pay the debt-servicing costs, and clear the PDLs in order of note class. The interest
payable on any unrated Z notes issued ranks below the reserve fund.39
At the funding level, the cash manger, on behalf of funding, uses principal receipts to repay
different tranches of intercompany loans, taking into account any activated deferral triggers (for
example, the level of arrears, reserve fund draws, low payment rates, or notes being past their step-
up date).
If a note is in an accumulation period, but not yet due, cash may remain trapped at the funding
level for payment at a later period.
At the issuer level, the cash manager, on behalf of the issuer, uses the revenue and principal
amounts deployed to make payments on the funding intercompany mortgage tranches to make the
required note payments.
If the tranches are non-GBP denominated, the cash manager, on behalf of the issuer, makes
payments to swap counterparties instead. The cash manager, on behalf of the issuer, will then use
the money received from the relevant swap counterparties to pay the noteholders.
Capitalist versus socialist structures: In a capitalist trust, not all the notes of the same class will
share the same PDL, whereas in a socialist trust, all the notes of the same class will share a PDL. A
trust may be capitalist as it has more than one funding vehicle, or because it has one funding vehicle
with different issuers each having separate PDLs. In a capitalist structure, therefore, notes from a
given class in one part of the structure may have more enhancement than the same class in another.
In a socialist structure, however, and at a given time, notes from the same class will have the same
levels of subordination.
In a socialist trust, different notes from the same class could still experience different losses owing to
the presence of time subordination.
Similarly, it is also possible that the cash manager, on behalf of the issuer, can repay a more
subordinate note from one series before a more senior note from a note with a later maturity. If
performance deteriorates, triggers and payment tests protect the senior notes.
For trusts with more than one funding vehicle, the cash manager allocates revenue proportionally
between the funding vehicles. However, for trusts with separate PDLs within one funding
company, the cash manager allocates revenue on a pro-rata basis, taking into account the
intercompany mortgage balance less the PDL. In case of a shortfall, the cash manager also allocates
losses and principal on a pro-rata basis.
39
Funding usually holds the reserve fund on behalf of the issuer. This action is in line with the PDL’s position,
which is also at the funding level. The cash is in a GIC (guaranteed investment contract), in line with our
criteria which requires it to be held at a P-1 rated institution.

RESIDENTIAL MBS
EXHIBIT 9
Capitalist Master Trust Structure
The cash manager allocates losses on a pro-rata basis between tranches of the same class that share
the same PDL, regardless of when the issuer issued them. Furthermore, notes sharing the same PDL
will share credit enhancement features, such as excess spread, reserve fund and subordination.
The cash manager records losses against a PDL for the amount of the loss realised following the sale
of the property backing the mortgage. A principal deficiency sub-ledger corresponds to each class of
notes.
EXHIBIT 9
Programme Origination Type
Aire Valley Bradford & Bingley Socialist
Arkle Lloyds Socialist
Fosse Alliance & Leicester / Santander UK Socialist
Gracechurch Barclays Socialist
Granite Northern Rock Asset Management Capitalist
Holmes Abbey / Santander UK Socialist
Lanark Clydesdale Bank Socialist
Langton Santander UK Capitalist
Lannraig Clydesdale Bank Socialist
Permanent Bank of Scotland Socialist
Silverstone Nationwide Socialist
Role of the seller share: The seller does not issue a note. Instead, the seller simply owns part of the
trust (the seller share).
The seller share covers risks unrelated to mortgage performance (such as, set-off risk relating to both
deposits and the loss of flexible amounts following originator insolvency). Additionally, the
mortgage trustee can set off any losses arising from the seller’s failure to meet its obligations in
terms of representations and warranties from the seller share.
SPV - Series 1
(2009)
Class A
Class B
Class C
SPV - Series 2
(2010)
Class A
Class B
Class C
SPV - Series 3
(2011)
Class A
Class B
Class C
SPV (Issuer)
Principal & Interest.
Excess funds
Reserve Account
Excess Spread
Reserve Account
Excess Spread
Reserve Account
Excess Spread

RESIDENTIAL MBS
An additional benefit of the seller share is that it allows the trust to accumulate funds faster,
therefore reducing the extension risk for bullet and scheduled amortisation notes.
The minimum seller share ranges from 5% to15%, depending on the level of flexible mortgages
and the set-off risk from retail deposits in the trust. This percentage compares with an average seller
share of 30% in UK RMBS.
However, the presence of a large seller share will reduce the amount of unencumbered assets; as
such, it will be set after taking into account the overall funding strategy.

RESIDENTIAL MBS
RESIDENTIAL MBS
Quick Reference Guide40
Collateral
Characteristics &
Underwriting
Japan Australia Netherlands41 UK
Typical Mortgage
Loan
35 years, amortising 25 – 30 years, amortising 30 years interest-only (IO), plus indirect amortisation
via a repayment vehicle.
25 years, amortising
Maximum Maturity By age: 80 years Case-by-case basis 30 years (no specific age limit) 40 years, usually by age 70–75 years
Typical Repayment
Type
Annuity Annuity IO mortgage loans are often combined with payments
into bank savings/life insurance vehicles attached to
different mortgage loan parts. Pure IO mortgage loans
with no repayment policy represent approximately
56% of all outstanding mortgage loans.42
Annuity, plus around 45% IO
Typical Interest
Rate
Variable at around 1%
25-year fixed around 2%-3%
Variable
Around 6.45%43
Fixed, subject to reset typically at 2, 5, 7 or 10 years.
Around 5%
Variable and 2- to 3-year fixed rate, reverting to a
lender-standard variable rate
Around 3.5%
Owner Occupied Max 100% loan-to-value (LTV)
80% - 95% LTV is typical at origination
200%-300% LTV refinancing is possible
No risk-based pricing
Full recourse
Max 95% LTV44
70% LTV is typical at origination
Full recourse
Max LTMV 105%45
Full recourse
Max 95% LTV
Risk-based pricing (LTV)
Full recourse
Investment
Mortgage Loans
Less than 2%
Non-banks
No cross-collateralisation
Full recourse
Max 95% LTV
Typically, interest premium of 1 percentage point over
interest rates for mortgage loans on a primary
residence
33%46
Mainstream lenders followed by non-banks
Cross collateralised with owner occupied
Full recourse
Max 90 % LTV
No interest premium
Not an established product 12.7%47
Non-banks followed by mainstream lenders
No cross collateralisation
Full recourse
Max 75% - 80% LTV currently
Interest premium of around 2 percentage points
40
Unless otherwise noted, this guide makes reference to Moody’s data, which we compute from rated transactions or using data from lenders.
41
The Code of Conduct governing mortgage loans changed considerably in January 2013, but since these new rules only affect new mortgage loans originated after this date, we have described the practices governing the collateral of
outstanding transactions.
42
DNB Financial Stability Overview, April 2011, from outstanding mortgage loans at Q2 2010.
43
Indicator Lending Rates, Reserve Bank of Australia, spreadsheet http://www.rba.gov.au/statistics/tables/xls/f05hist.xls?accessed=2013-02-25-13-19-05 (Column k) as at January 2013.
44
LTV: Loan-to-value (ratio).
45
Dutch Code of Conduct, Dutch Financial Supervision Act (Tijdelijke Regeling Hypothecair krediet).
46
Monthly Banking Statistics, ARPA http://www.apra.gov.au/adi/Publications/Pages/monthly-banking-statistics.aspx

RESIDENTIAL MBS
RESIDENTIAL MBS
Collateral
Characteristics &
Underwriting
Japan Australia Netherlands UK
Redraws No Common feature
Not subject to updated credit checks
Not common Less common than before credit crunch
Available subject to passing updated credit checks
Foreclosure Time
(from first missed
payment)
6-18 months after default 9-12 months 6-12 months 12 months
Serviceability
Measure
Debt-to-income ratio less than 35% to 45% Net service ratio (NSR) >1
NSR = (Net Income – Living Expenses) / Total
Outgoings
4x-5x income multiple
25%-35% debt to income
Income multiples <4
Debt-to-income thresholds depending on lender and
credit scorecard
Interest Rate Stress Around 4% Standard variable rate: +1.5-2 percentage points 5.0% 48 Around 6% -7%
Credit Bureau
Information
Positive and negative information retained Only negative information retained Positive and negative information retained Positive and negative information retained
Key Lending
Regulations
Money-Lending Business Control and Regulation Law,
2009
National Consumer Credit Protection (NCCP) 1996 National Instituut voor Budgetvoorlichting (NIBUD):
Code of Conduct for lenders, Stichting Autoriteit
Financiële Markten (AFM)
Mortgages and Home Finance: Conduct of Business
Sourcebook (MCOB), FSA 2007
Market Share of
New Lending
Three Mega Banks (around 19%)
Mega Banks Market Share49
Bank of Tokyo-Mitsubishi UFJ (Aa3) 7.2%
Sumitomo Mitsui Banking (Aa3) 6.3%
Mizuho Bank (A1) 5.7%
(Market share of outstanding mortgage amounts)
Some US securities firms exited around 2008
Big 4 (around 85%)
Lender Market Share50
CBA (Aa2) 27.4%
WBC (Aa2) 25.7%
NAB (Aa2) 16.8%
ANZ (Aa2) 15.3%.
Top 3 (around 80%)
Rabobank Nederland (Aa2) 33%
ABN AMRO Bank N.V. (A2) 25%
ING Bank N.V. (A2) 22%
Top 6 (80.7%)
Lloyds Banking Group (A3) 19.9%
Santander (A2) 16.8%
Barclays (A2) 12.1%
Nationwide BS(A2) 12.1%
Royal Bank of Scotland (A3, RUR53
) 10.4%
HSBC Bank (Aa3) 9.4%
Broker Originations 0% About 40%54
About 40%55 50%
47
FSA Q2 2012.
48
Dutch Banking Association, www.nvb.nl
49
Bank Financial Statements, Japan Housing Finance Agency.
50
Monthly Banking Statistics, APRA, issued 31 January 2013.
51
See Moody’s Banking System Outlook - The Netherlands, 11 December 2012
52
Market share as at 2011.
53
RUR: ratings under review.

RESIDENTIAL MBS
RESIDENTIAL MBS
Lenders’ Mortgage
Insurance (LMI),
Guarantor and
National
Mortgage
Guarantee (NHG)
LMI or Guarantor Guarantees widely used LMI widely used NHG guarantee widely used
NHG origination is approximately 23%56
of the total
debt
No significant use of LMI
Premium Based on mortgage amounts outstanding
Monthly instalments or upfront lump sum
Based on LTV and mortgage amount
Upfront lump sum
Borrower pays 0.85%57
of total mortgage upfront to
the guarantor
N/A
Providers Bank subsidiary
Typically not rated by any rating agencies
Two independent mono-lines
Rated (A2) and (A3), respectively
One government entity
Homeownership Guarantee Fund (known as Stichting
Waarborgfonds Eigen Woningen (WEW)
Rated (Aaa)
N/A
Possibility of Claim
Reductions
No Yes Yes. However, provisions in the deal documentation
require the seller to repurchase loans, if NHG criteria
are not met.
N/A
Credit Implications We consider the mortgage guarantee in our rating
analysis.
However, the structure of many deals provides
sufficient unrated junior note subordination for the
senior notes to obtain Aaa (sf)-rated credit quality
without any benefit from the guarantee.
Senior notes require less subordination to obtain a Aaa
(sf) rating.
If the deal has structured credit protection, in addition
to non-retainable excess spread, the rating of the
junior note will correspond to the Insurance Financial
Strength (IFSR) of the lowest-rated mortgage insurer
in the deal. Otherwise, we are likely to rate the junior
note between Ba1 (sf) and B3 (sf), depending on
collateral quality and the mortgage insurer’s likely
claim reductions.58
Less subordination
Our analysis incorporates (1) the mismatch between
the annuity amortisation of the guarantee and the
actual amortisation of the loan; and (2) the rescission
rate (in case there is no full payout by Stichting
Waarborgfonds Eigen Woningen (WEW)).
N/A
54
Broker loans accounted for 42% of total mortgage loans originated during the first quarter of 2012. See Mortgage Brokers Continue to Grow – Lifting Market Share and Volume, Mortgage & Finance Association of Australia, 16 May
2012 http://www.mfaa.com.au/default.asp?artid=2848
55
AFM Consumentenmonitor, June 2012.
56
Approximation ultimo 2012, based on total NHG loans (EUR154.1 billion) and total mortgage debt (EUR672.3 billion) (sources: NHG, CBS).
57
As per January 2013 (source: NHG).
58
See Approach for Evaluating Lender’s Mortgage Insurance in Australian RMBS, 19 October 2012.

RESIDENTIAL MBS
RESIDENTIAL MBS
Housing
House Prices Declining Prices
Residential land prices in Japan rose dramatically in
the late 1980s (during the bubble era), before
plunging in the early 1990s. Prices have since
declined consistently over a prolonged period.
The current index level is the same as in the early
1980s.
Lenders originated the majority of residential
mortgage loans backing Japanese RMBS after 2000,
when land prices had fallen to low levels after
peaking in 1990.
Steady Prices
House prices remain steady, with the current housing
shortage supporting prices.
Low unemployment and interest rate cuts by the
Reserve Bank of Australia will also support prices.
The recent slowdown in prices and the lower
borrowing costs have improved affordability (RP-
Data Rismark’s house price-to-income ratio is at its
lowest level since March 2003).
Declining Prices
House prices in the Netherlands have been on a
downward trend since mid-2008. However we
expect them to stabalise over the next 12 months.
According to the Nederlandse Vereniging van
Makelaars (NVM) index, the current peak-to-trough
decline is approximately 22%.59
Stabilising
UK house prices have started to increase after being
flat for the past couple of years. We are expecting to
see further increases over the next 12 to 18 months.
While weak demand will weigh on property prices,
tight supply will prevent any sustained fall in prices.
Demand will remain weak as households face a
number of pressures, including continued job
insecurity, squeezed finances and tight credit
conditions.
Housing Bubbles 1990
Land prices rose dramatically during the “bubble
economy” of the late 1980s. When the bubble burst,
prices plunged and have continued to decline to the
present.
Current prices are at the same level as in the early
1980s.
The value of a new home declines sharply right after
the first purchase, as buyers prefer to buy brand new
properties rather than second-hand ones.
2003-04
Australia’s housing market boom (2001–04) ended
three years before the global credit crisis, giving the
market time to adjust.
Australian policymakers made a deliberate effort to
deflate the housing boom through monetary policy
tightening, which resulted in a soft landing.
When the 2007 crisis hit, house prices held up well
because policymakers lowered interest rates.
2007
House prices in the Netherlands grew strongly in the
1995-2007 period, as economic conditions and debt
availability improved.
Since the start of the financial crisis, house prices
have declined by approximately 22%.60
2007
House prices grew strongly in the 2000–2007 period,
reflecting strong economic conditions and easy
access to credit, with prices rising by an average of
12.3% on an annualised basis.61
Prices fell by around 20% between Q3 2007 and Q1
2009, but have since recovered slightly, rising by an
average 2.0% annually since the trough in Q1 2009,
as a result of tight supply and low interest rates.
59
Nederlandse Vereniging voor Makelaars (NVM), Q2 2013.
60
NVM.
61
As computed by Moody’s from the Lloyds Banking Group and Nationwide house prices indices.

RESIDENTIAL MBS
RESIDENTIAL MBS
Housing
Quarterly House Price Growth
House Price Index
Source: Australian Bureau of Statistics (ABS): House Price Index, Halifax Bank of Scotland (HBOS) Tokyo Stock Exchange, Inc.; Moody's Analytics Adjusted, Statistics Netherlands
Housing Supply Balanced Demand/Supply
Housing demand declined after the 11 March 2011
earthquake, but recovered thereafter.
Housing supply and demand are currently reasonably
balanced.
Undersupply
There is a cumulative undersupply of 228,000
dwellings nationally. The most acute shortage is in
New South Wales with a shortage of 89,000
dwellings.62
Undersupply
Historically, there has been a structural housing
shortage in the Netherlands. When comparing the
number of households with the housing stock, there
is a shortage of supply.63
In addition, the vacancy
rate is approximately 2%.64
Undersupply
Housing supply in the UK is very tight. There was a
long-term housing surplus up to 2008, with 3% more
houses than households.65
In recent years, the annual increase in the housing
stock has fallen to almost half the long-term average.
Housing starts also remain subdued, and we believe
the number of completions in 2013 will remain
broadly similar to the number in 2012.66
62
Housing Supply and Affordability Key Indicators 2012, National Housing Supply Council, http://www.nhsc.org.au/content/publications/housing_supply_affordability/downloads/housing_supply_affordability_report.pdf
63
Number of households from Eurostat (7.3 million) versus number of dwellings from Hypostat 2010 (7.2 million).
64
Housing Statistics in the European Union 2010, The Hague: Ministry of the Interior and Kingdom Relations.
65
Department for Communities and Local Government.
66
See Tight UK Housing Supply Is Credit Positive for UK RMBS (published 5 September 2011) for more details on the demand/supply dynamics in the UK.
50.0
100.0
150.0
200.0
250.0
300.0 2000Q1
2000Q3
2001Q1
2001Q3
2002Q1
2002Q3
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
Australia Japan U.K. Netherlands

RESIDENTIAL MBS
RESIDENTIAL MBS
Housing
Tax Benefits Investment Properties
Property investors can deduct mortgage interest
payments from their taxable income.
Owner Occupied
Homes bought during the 2009-2013 period enjoy
temporary tax cuts introduced to stimulate the
economy.
Eligible buyers obtain 1% or 1.2% income tax
reductions for the year-end outstanding amount of a
residential mortgage for a period of 10 years. The
maximum tax reduction allowed is JPY6 million in
total.
Investment Properties Only
Mortgage interest can be offset against rental income
for investment properties but is not deductable for
owner-occupied properties.
Owner Occupied
Generous tax deductibility on mortgage loan interest
payments is available, subject to conditions.
Since 2001, the government has limited mortgage
tax deductibility to mortgage loans on the borrower’s
main residence for periods of up to 30 years, with the
top tax rate being 52%.
Recent changes will gradually reduce the tax
deductibility for borrowers in the highest tax bracket
starting in 2014.67
Investment Properties Only
Mortgage interest can be offset against rental income
for investment properties, but is not deductable for
owner-occupied properties.
67
See Dutch RMBS: New Coalition’s Proposed Agreement Reduces Leverage While Affordability Remains Largely Unaffected, 14 November 2012.

RESIDENTIAL MBS
RESIDENTIAL MBS
Income and
Population
Average Annual
Income
Males approx. ¥5,038,000
Females approx. ¥ 2,679,00068
Males $79,139
Females $62,55669
€33,00070
gross Males £33,168
Females £20,06571
Progressive Income
Tax Scales
Income Tax Rate
¥0-¥1.95 million 5%
¥1.95-¥3.3 million 10%
¥3.3-¥6.95 million 20%
¥6.95-¥9 million 23%
¥9-¥18 million 33%
>¥18 million 40%
The government requires all employees to take up
welfare pension insurance, unemployment insurance
and healthcare insurance
Income Tax Rate72
0 - $18,200 Nil
$18,201 - $37,000 19%
$37,001 - $80,000 32.5%
$80,001 - $180,000 37%
>$180,001 plus 45%
Effective 1 July 2012
Income Tax Rate73
€0 - €19,645 37%
€19,646 - €33,363 42%
€33,364 - €55,991 42%
>€55,992 52%
Income* Tax Rate74
£0-£32,010 20%
£32,010-£150,000 40%
>£150,000 45%
*There is also a tax-free allowance of £9,440, and
which is less for those earning above £100,000.
Population
(millions)
126.8 22.775
16.876
63.277
Population Growth
Rate
-0.242% 1.6%78
0.28%79
0.7%80
68
National Tax Agency, FY 2011.
69
Australian Bureau of Statistics, Average Weekly Earnings (Full Time Adult Total Earnings x 52) as at February 2012.
70
As of 2012, source http://www.gemiddeld-inkomen.nl
71
ONS, 2012.
72
Australian Taxation Office, http://www.ato.gov.au/individuals/PrintFriendly.aspx?ms=individuals&doc=/content/12333.htm
73
http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/prive/inkomstenbelasting/nieuw_in_2013/boxen_en_tarieven_2013/overzicht_tarieven_en_schijven/u_hebt_in_2013_de_aow_leeftijd_nog_niet_bereikt
74
HM Revenue & Customs, http://www.hmrc.gov.uk/rates/it.htm#2
75
Australian Bureau of Statistics, http://www.abs.gov.au/ausstats/abs@.nsf/mf/3101.0 as at June 2012.
76
Centraal Bureau voor de Statistiek (CBS).
77
CBS.
78
Australian Bureau of Statistics, http://www.abs.gov.au/ausstats/abs@.nsf/mf/3101.0 as at June 2012.
79
CBS (June 2012 - 2013).
80
ONS.

RESIDENTIAL MBS
RESIDENTIAL MBS
RMBS
Performance
Current 90+ Day
Delinquencies
0.14% 0.57%81
N/A
(0.89% based on 60+ day)82
1.92%83
Worst-Performing
Vintages
2007 & 2008 vintages
Some deals in the 2007 and 2008 vintages have
performed worse than initially expected. The mortgage
loans backing those deals were originated under
relatively loose lending criteria.
2004 & 2005 vintages
The 2004 and 2005 vintages are the worst performing,
as lending standards were looser during this period.
Nevertheless, the 2004 vintage, which has the highest
losses to date, has only incurred 37 basis points (bps)
of loss (pre-LMI).
No variations 2006 & 2007 vintages
While the 2006 and 2007 vintages had the weakest
underwriting and highest LTVs, there has not been a
significant variation in their performance due to low
interest rates.
Delinquency
Outlooks
Stable
RMBS performance remains stable on the back of
continued buybacks and the relatively high credit
quality of borrowers.
Most borrowers in the underlying pools are resistant to
the economic downturn, as they are permanent, full-
time employees of medium-sized or large companies.
Such companies rarely lay off permanent employees,
even during recessions.
The typical borrower has a low debt-to-income ratio of
around 25%.
Borrowers’ annual salaries are sufficient to make
mortgage payments, despite the possibility of reduced
bonuses.
Stable
Delinquencies will not rise substantially in 2013
because the low interest rate environment and
moderate economic growth will offset unemployment
and underemployment in certain sectors of the
economy, such as retail and tourism.
Stable
Performance in this sector has been stable for the past
year, mainly because of low interest rates and a
broadly stable unemployment rate amongst
homeowners.
Generous unemployment benefits will continue to
help borrowers avoid payment shock following loss of
employment.
Stable
Performance in this sector has been stable for the past
year, mainly because of low interest rates and a stable
unemployment rate amongst homeowners.
Interest rates will remain low over the next two years
and unemployment will remain broadly flat at 7.9% in
2013 compared with its current level of 7.7%84
.
Prime borrowers can better cope with job loss than
non-conforming borrowers because lenders are often
willing to offer alternatives. For example, lenders allow
prime borrowers to reduce their monthly repayments
by temporarily switching from a capital repayment to
an IO mortgage.
Downgrade Drivers Guarantor/Seller Downgrades & Performance
Counterparty downgrades (i.e., guarantors and sellers)
have triggered a significant number of rating
downgrades in RMBS deals.
Poor collateral performance has led to only nine rating
downgrades in four deals.
LMI Downgrades
Mortgage insurer downgrades and Moody’s new rating
methodology for evaluating LMI in Australian RMBS
have led to RMBS downgrades, predominantly for the
junior notes.85
Poor mortgage performance has not resulted in
mortgage downgrades. Moreover, there have been no
charge-offs on any of the notes that we rate.
Methodology & Performance
NHG methodology updates86
(introduced in 2009)
and counterparty risk (whereby an originator
bankruptcy led to due care claims)87
were the primary
drivers of RMBS downgrades.
Methodology & Performance
We have not downgraded any notes issued by master
trusts. However, we did downgrade non-investment
grade notes issued to sell credit protection on the
Granite Reserve Fund, as a result of worse-than-
expected collateral performance.
81
See https://www.moodys.com/research/Global-Structured-Finance-Collateral-Performance-Review-Excel-Data--PBS_SF220325
82
See https://www.moodys.com/research/Dutch-Prime-and-NHG-RMBS-Indices-June-2013--PBS_SF340227
83
See https://www.moodys.com/research/UK-Prime-RMBS-Indices-May-2013--PBS_SF337879
84
See http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/september-2013/statistical-bulletin.html
85
See Moody’s concludes review of Australian RMBS, 6 February 2013.

RESIDENTIAL MBS
RESIDENTIAL MBS
RMBS Structural
Features
Structure Standalone, pass through Standalone, pass through Standalone, pass through and some master trust Master trust with some standalone
Note Amortisation Sequential pass through only Sequential pass through, with allowance for pro rata of
principal
Sequential pass through, soft bullet (master trusts) Soft and hard bullet, scheduled amortisation and pass
through
Legal Final 37 years 31 -32 years 30-40 years 30–50 years
Portfolio Static (standalone) Static (standalone) Dynamic (master trusts)
Static with some dynamic (standalone)
Dynamic (master trusts)
Static (standalone)
Cash Flows Cash flows received from mortgage loans are initially
for investors.
Cash flow waterfalls allow for excess spread trapping.
Seller/originator receives excess cash via coupon
payment on subordinated tranche.
Some deals have subordinated/mezzanine note
dividend suspension triggers, whereby the asset trustee
allocates the dividend as a principal payment to senior
notes.
All cash flows received from mortgage loans are for
investors.
Cash flow waterfalls allow for pro-rata principal
payments between senior and junior notes, subject to
certain conditions.
Trapping of excess spread is not common.
Trust income unit holder (sponsor) receives excess
cash.
All cash flows received from mortgage loans are for
investors.
Standalone deals have a senior subordinated
priority structure.
Typically, the swap structure guarantees net excess
spread (after costs).
Master trust: Cash flows are allocated between the seller
and funding share. Cash flow waterfalls follow a complex
system of rules governing payment waterfalls, as the cash
manger allocates cash distributed from the trust to pay
different notes, depending on the redemption dates and
triggers. Delinquencies and payment rates affect cash flow
rules.
Standalone deals: Generally, time subordinated class A
notes rank senior to subordinated Z notes, which rank
below the reserve fund.
Set-Off Risk Deposit set-off risk mitigated by deposit insurance,
cash reserves and additional credit enhancement
Deposit set-off risk mitigated by waiver of set-off in
mortgage documents and breaking of mutuality.
Few deals have deposit set-off risk because
mortgage provider is typically a separately
incorporated entity from the deposit taking
institution.
Currently, insurance policy set-off is a greater risk,
but will be reduced over time as government
policies phase out IO loans coupled with insurance
policies.
Set-off risk is incorporated into our cash flow
modelling when determining the credit rating of the
notes.
The size of the minimum seller share in a master trust
incorporates a component to mitigate deposit set-off risk,
taking into account the level of deposits by the originator.
86
See Moody's Updated Approach to NHG Mortgages in Rating Dutch RMBS, 17 March 2009.
87
See DSB: One Year After the Bank’s Default, 21 December 2010.

RESIDENTIAL MBS
RESIDENTIAL MBS
Ongoing Reliance
on Originator
Medium
The employment of additional subordination with
junior notes (rather than swaps) mitigates interest rate
mismatches.
Medium
The originator is also the sponsor, which will typically
service the pool, perform cash management, and
provide swaps and bank accounts
Medium
The originator is also the sponsor, which will
typically service the pool, perform cash
management, and provide swaps, liquidity and bank
accounts
Master trust deals also rely on the originator to
make timely principal payments by refinancing
notes or repurchasing portions of the pool.
High
The same as Australian and Dutch RMBS, with additional
reliance on the originator (in the case of master trust
deals) to continually add mortgage loans to ensure that a
non-asset trigger is not hit. The addition of new mortgage
loans mitigates extension risk on notes that have a
scheduled maturity date.
Back-up Servicer
(BUS) Arrangements
Under trust law, the asset trustee is responsible for the
servicing role, which it then outsources to the servicer.
If the servicer needs replacing, the asset trustee is
obliged to service the portfolio or look for a substitute
servicer.
Many deals issued by regional banks appoint a BUS at
closing, while Aa-rated deals issued by major banks do
not.
In all deals, even those of highly rated banks, the
trustee is the legal BUS. However, it has the right to
outsource the servicing role to a third party.
Increasingly, we are witnessing “warm” back-up
arrangements.
Dutch RMBS deals rely on the credit strength of the
servicer.
Deals often have (1) a BUS replacement trigger, (2)
a BUS facilitator, and/or (3) a third-party cash
manager. The facilitator, if appointed, is responsible
for finding a replacement servicer.
UK RMBS master trusts rely on the credit strength of the
servicer.
Standalone deals often have either a BUS or a BUS
facilitator, which, if appointed, is responsible for finding a
replacement servicer.
Tranches Currently
Issued
Two or three
One or two senior, Aaa (sf)
One junior, (NR)
Two or three
Possibly one mezzanine, Aaa (sf)–A1 (sf)88
One junior, A2 (sf)–B2 (sf), but typically Ba189
Generally several
Two to five mezzanine and junior tranches, (Aa1 (sf)
– Ba3 (sf))
Generally several
Aaa (sf) with different maturities and currencies
One junior, (NR)
Junior Notes Bear no interest (only excess spread)
Always held by the originator
5%-8% of the structure
Bear interest
May be sold to investors
1%-2% of the structure
Bear interest
Retained by seller at closing
Around 5%-8% of the structure including
mezzanine notes
Bear interest, but interest payable ranks junior to the
reserve fund replenishment
Retained by seller at closing
Around 10%-15% of the structure
Trends Return to simple structures
A number of complexly structured deals appeared in
the 2007-08 period, but almost all the deals thereafter
had very simple structures.
Increased subordination
Subordination in senior notes is increasing so as to
decrease dependence on the credit quality of the
lenders mortgage insurers.
Decreasing reliance on excess spread via the
swap
The number of deals in which the swap does not
guarantee a net excess margin has risen.
Mixed pools
The number of pools made up of both NHG and
non-NHG loans has increased. Prior to this rise,
there was a clear separation between NHG and
non-NHG pools.
Less issuance, simpler structures
Overall issuance has fallen due to the Funding for Lending
Scheme (FLS). Issuance of rated mezzanine notes is
limited, while there has been some issuance of hard bullet
notes.
Issuers have removed yield reserves from trusts and
servicers have increased minimum trust yields.
88
These are current outstanding ratings. The initial ratings are typically Aaa (sf)–A1 (sf). The differences are due to methodology changes regarding lenders’ mortgage insurance. See Approach for Evaluating Lenders Mortgage Insurance in
Australian RMBS, 19 October 2012.
89
These are current outstanding ratings. Initial ratings are typically A1(sf) – A3 (sf). The differences are due to methodology changes regarding lenders’ mortgage insurance. See Approach for Evaluating Lenders Mortgage Insurance in
Australian RMBS, 19 October 2012.

RESIDENTIAL MBS
Moody’s Related Research
For a more detailed explanation of Moody’s approach to these types of deals as well as related
research please refer to the following reports:
» Japanese Delinquencies of RMBS are More Highly Correlated with Self-Employed Borrower
Status than High LTV Ratios, July 2012 (SF291327)
» Australian RMBS compared to US, UK & Spain, October 2009 (SF181855)
» Approach for Incorporating Lender’s Mortgage Insurance in Australian RMBS, October
2012 (SF303936)
» NHG Mortgages in Dutch RMBS: Key Features and Moody’s rating Approach, June 2005
(SF57858)
» Dutch RMBS: New Coalition’s Proposed Agreement Reduces Leverage While Affordability
Remains Largely Unaffected, November 2012 (SF305504)
» Moody’s Updated Methodology for Set-off in Dutch RMBS, November 2009 (SF179373)
» Moody’s Updated Approach to NHG Mortgages in Rating Dutch RMBS, March 2009
(SF157265)
» Approach to Quantifying Set-off Risk for Securitisation and Covered Bonds Transactions
Originated by UK Deposit-Taking Institutions, May 2012 (SF265743)
» UK Government’s Plan to Stimulate Mortgage Lending is Credit Positive for RMBS, March
2013 (SF321929)
» UK Mortgages: Performance Will Continue to Improve in 2013, January 2013 (SF308124)
» Moody’s: New FSA MMR rules will benefit UK prime RMBS in long term, November 2012
(SF305091)
» UK RMBS Master Trusts: Extension Risk Remains Significant due to Low Principal
Payment Rates, May 2012 (SF283721)
» Moody’s Approach to Quantifying Set-off Risk for Securitisation and Covered Bonds
Transactions Originated by UK Deposit-Taking Institutions, May 2012 (SF265743)
» The Role of Back-up Servicer Facilitators in European ABS and RMBS Explained, March
2012 (SF279875)
» Global Structured Finance Operational Risk Guidelines: Moody’s Approach to Analysing
Performance Disruption Risk, June 2011 (SF241345)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication
of this report and that more recent reports may be available. All research may not be available to all clients.
Moody’s publishes a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.

A Comparison of Japanese, Australian, Dutch and UK RMBS and Mortgage Markets copy

A Comparison of Japanese, Australian, Dutch and UK RMBS and Mortgage Markets copy

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (20)

Similar to A Comparison of Japanese, Australian, Dutch and UK RMBS and Mortgage Markets copy

Similar to A Comparison of Japanese, Australian, Dutch and UK RMBS and Mortgage Markets copy (20)

More from Arthur Karabatsos

More from Arthur Karabatsos (6)

A Comparison of Japanese, Australian, Dutch and UK RMBS and Mortgage Markets copy