Moody's: Portuguese RMBS performance remained stable in February 2015

The performance of the Portuguese residential mortgage-backed securities (RMBS) market remained stable in the three-month period ended February 2015, according to the latest indices published by Moody's Investors Service.

In February 2015, 60+ day delinquencies slightly decreased to 1.14% of the current portfolio balance from 1.17% in November 2014 and 1.19% in February 2014, whilst 90+ day delinquencies slightly increased to 0.88% of the current balance from 0.87% in November 2014 and 0.90% in February 2014. At the same time, outstanding defaults (360+ days overdue, up to write-off) continued to increase to 3.03% of the current balance in February 2015 from 2.95% in November 2014 and 2.78% in February 2014. The prepayment rate of Portuguese RMBS remained stable during the three-month period at 1.82%, up from 1.40% in February 2014.

Most Portuguese RMBS transactions benefit from a provisioning mechanism, which captures excess spread to provide for future losses on highly delinquent loans before the actual realisation of losses. When excess spread is insufficient for provisioning, transactions draw on reserve funds. A total of seven transactions had their reserve funds below target at the end of February 2015, down from eight transactions at the end of November 2014. Two transactions, Lusitano Mortgages No. 5 and Lusitano Mortgages No. 6 Limited, have fully drawn on their reserve funds and have an outstanding principal deficiency ledger.

As of the end of February 2015, Moody's completed the review of all Portuguese RMBS initiated on 23 January 2015 following the increase in the local country ceiling to A1 from A3 in Portugal (see "Moody's takes rating actions on Irish, Italian, Portuguese, Spanish ABS/RMBS deals", 23 January 2015, http://www.moodys.com/viewresearchdoc.aspx?docid=PR_316959).

Over half of senior Portuguese RMBS are now rated at the country ceiling (see "Risk Expectations on Senior ABS/RMBS Notes are now Lower Reflecting Higher Country Ceiling", 9 March 2015, http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1002829).

On 20 March 2015, Moody's placed on review for upgrade the ratings on 24 notes in Portuguese RMBS transactions. These rating actions followed the update to Moody's structured finance methodologies in order to incorporate the new Counterparty Risk Assessment (see "Moody's takes actions on multiple EMEA RMBS and ABS notes' ratings", 20 March 2015, http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320982).

Moody's expects that Portuguese GDP will increase by 1.0% in 2014 and by 1.3% in 2015 after declining 1.4% in 2013. Moody's also expects that the unemployment rate will decrease to 14.2% in 2014 and to 13.6% in 2015 from 16.4% in 2013 (see Portugal, Country Statistics, November 2014, http://www.moodys.com/viewresearchdoc.aspx?docid=CTS_614650).

Overall, Moody's has rated 32 Portuguese RMBS transactions since 2001, of which 26 are outstanding, with a total outstanding pool balance of billion as of February 2015 compared with billion as of February 2014.