Table 1

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Table 4

Summary Of Methodology For Our European RMBS Index

What is included in the European RMBS index?

We include a transaction once nine months have elapsed since the closing date. This is because we expect that performance developments of a transaction are likely not to be visible immediately after closing. As the index is current balance weighted, including transactions with less than nine months of performance will lower the denominator of the index and may give an overly positive impression of performance.

Are esoteric RMBS transactions included?

We assess this on a case-by-case basis. By way of example, equity release (reverse mortgage) nonperforming transactions backed by residential mortgages are excluded, while reperforming RMBS transactions are included.

What is the data source?

It is compiled form investor reports, and as such is based on each transaction's definition of arrears.

What is the definition of total delinquencies?

Total delinquencies are defined as arrears for one or more calendar months.

Is it loan count or dollar-weighted index?

The index is calculated as the current balance of loans in each arrear's status (as reported in the investor reports), divided by the current balance of each transaction (as reported in the investor reports). As such, in some countries which have a limited number of transactions forming the index, larger transactions will drive the overall group.

What does table 3 represent in terms of total delinquencies change?

To lessen the natural limitations of a dollar-weighted index, this table shows the transaction count by absolute arrears change within a certain group. We categorize these changes in three buckets: Total delinquencies down by more than two percentage points," total delinquencies up by more than two percentage points," and total delinquencies are stable (change between -2 percentage points and +2 percentage points)". This table only incorporates transactions that are included both in the current quarter and in the previous one.

When a transaction redeems, how does it affect the index? Does it affect the past quarter(s)?

When a transaction redeems, it does not contribute to the index beyond that point. It has no effect on reported values for previous quarters.

When do we cut off the index for a given quarter?

The cut off is based on the period covered in investor reports. For example, if the index covers the period up to first-quarter 2022, for a quarterly reporting transaction only collateral data with a cut-off between Jan. 1, 2022, and March 31, 2022, is included. For transactions that report monthly, we use the latest report from the quarter.

Both pre- and post-2014 indices are presented. How is this classification performed?

This is based on the origination date of the assets. If a pool of assets is split equally between pre- and post-2014 vintages, we will assess on a case-by-case basis whether it is included in the pre- or post-2014 index.

Why do prior quarter's numbers sometime change?

There are two main reasons:

• Data can be amended by the servicer/party providing the investor report.
• Newer data for the most recent quarter is available. For example, in a transaction that reports monthly, if we receive data until February 2022 when producing the first-quarter 2022 index, we will use the data up until that date. However, if we then receive March 2022 data when producing the following quarter's index, we will backfill first-quarter 2022 for that transaction with the March 2022 data.

How are transactions that contain a mixture of BTL and owner-occupied collateral classified?

For countries with separate BTL and owner-occupied indices, for example U.K. and Netherlands, we typically classify the transaction based on which portion of the collateral is the largest at the issuance date. For example, if a pool had 60% BTL collateral and 40% owner-occupied collateral at closing, it would form part of the BTL index. If the relative split of BTL and owner-occupied reversed due to prepayment or amortization, we would not typically change the classification.

How is nonconforming collateral categorized?

There is no standard market definition of nonconforming. Broadly speaking, nonconforming collateral does not meet the definition of prime. This is typically due to the pool having material exposures to borrowers with previous adverse credit, such as prior mortgage arrears and county court judgments, and/or significantly complex income. The assessment of whether a pool is nonconforming can be subjective and is disclosed in related ratings commentary.

Where do second-charge transactions appear in the index?

We do not include them as a separate index given these are just a handful of transactions. Instead, they are based on the categorization of the transaction (prime, BTL, etc.).

Related Research

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• Economic Outlook U.K. Q1 2023: A Moderate Yet Painful Recession, Nov. 29, 2022
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