Rooftop reaps the benefits of low three-month LIBOR as arrears fall

Low three-month LIBOR is behind a significant decrease in Rooftop Mortgages’ arrears, according to Fitch Ratings.

A report from the ratings agency shows that the arrears levels of Mansard Mortgages, a series of non-conforming residential mortgage-backed securities originated by Rooftop, have almost halved since their peak.

Fitch says: “The arrears in this series have stabilised as all the loans are linked to the three-month LIBOR rate and are benefiting from the current low rates.

“As of June/July 2011 the volume of arrears by more than three months, excluding repossessions, was 17.4% for Mansard 2006-1, 13.8% for Mansard 2007-1 and 10.2% for Mansard 2007-2, compared with their peaks of 30.0%, 27.8% and 11.9%, respectively.”

Fitch affirmed the ratings of 13 Mansard tranches and upgraded a further three. It also affirmed eight tranches of Farringdon Mortgages 1 and 2, another RMBS backed by Rooftop-originated loans.

The ratings agency says that in July 2011, the volume of loans in arrears by more than three months was 14.8% for Farringdon 1 and 20.0% for Farringdon 2, down from peaks of 24.2% and 25.6% respectively in Q3 2009, which it again puts down to the low three-month LIBOR rate.

Rooftop closed to new business in April 2008, shortly before its parent Bear Stearns went into administration.

Industry consultant Jonathan Cornell says specialist lenders such as Rooftop had reversion rates linked to LIBOR and its borrowers are likely to now be coming off fixed and tracker rates on to the lender’s comparatively cheap reversion rate.

He says: “Three-month LIBOR has been low for the past few years, but it is creeping up and the closer we get to a base rate hike, the higher it will go.

“Rates are only going to go one way, meaning Rooftop borrowers are currently experiencing more of a temporary reprieve than a long-term solution.”