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MMR will have negative impact on non-conforming RMBS

The final consultation paper of the Mortgage Market Review will have a negative credit impact on non-conforming UK residential mortgage-backed securities, according to Moody’s Investor Services.

The ratings agency says the Financial Services Authority’s proposals will have a credit neutral impact on prime RMBS, however.

It says this is because the affordability criteria in the revised rules will be looser than the original proposals, and the revised proposals contain a new measure to mitigate the impact on existing borrowers.

But Moody’s argues that the latest proposals will be credit negative for the £19.8bn of non-conforming RMBS in the UK because they will make it difficult for weaker borrowers to take advantage of waivers on affordability checks.

It says: “As such borrowers will continue to have extremely limited refinancing options in the medium term.”

Moody’s adds: “The FSA estimates that the revised proposals will have the greatest impact on credit-impaired borrowers, with 10.5% currently affected versus 2.5% for the market as a whole.

“Therefore weaker borrowers will find it harder to take advantage of the proposed waivers meaning that they will be unable to refinance onto more attractive rates. As such, Moody’s expects that UK non-conforming RMBS (negative outlook) will continue to perform significantly worse than UK prime RMBS (stable outlook).”

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