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Rating watch could hit Rooftop securitisation

Rooftop Mortgages suffered a blow last week after Fitch Ratings put out a negative rating watch that could result in its second securitisation downgrading.

The ratings agency put out the watch as a way of notifying the industry of its intent to take action which could result in a downgrade.

When Fitch issues this sort of warning it typically takes action within six months. This will either be an affirmation that the problem has gone away or a downgrade.

Three tranches of the lender’s securitisation Farringdon Mortgages No 2 have been put on watch following increased losses in the quarter that culminated in a reserve fund draw.

Back in May Rooftop had its Farringdon Mortgages No 1 securitisation downgraded, which some industry pundits attributed to lax underwriting.

It also sparked fears of a wider impact on the market with investors put off mortgage bonds. But Fitch has now affirmed all tranches of Farringdon Mortgages No 1.

Both transactions are originated by Rooftop Mortgages, a subsidiary of Bear Stearns, and have been the subject of a renewed loan-by-loan and cash flow analysis.

A spokesman for Fitch says: “Nobody has lost any money at this point but the reserve fund is diminished so there is less protection. This is a red flag of a potential problem.”

One source says: “This is bad news for Rooftop as it tarnishes its reputation and could put investors off. If it can’t sell its assets, it’s out of business. But there is a market for downgraded bonds although they sell for a lesser premium.”

But Ginny Darrow, chief executive officer of Rooftop, says: “In October, Farringdon 2’s reserve fund was drawn down for the first time by the relatively low amount of £54,000. This was primarily a result of realised losses during the reporting period.

“We have worked closely with Fitch to understand its concerns and to provide information as requested. We will continue to manage the arrears portfolio.”

Others in the industry argue that this is unlikely to have a wider impact on the securitisation market.

Jeff Knight, director of marketing at GMAC-RFC, says: “The amount of securitisation Rooftop does is marginal compared with other firms so this warning won’t affect bigger players.”


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