Fitch Affirms Six Classes from Two Mortgage House Series Transactions at 'AAAsf'; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Sydney-21 February 2021: Fitch Ratings has affirmed six classes of notes from two Mortgage House RMBS Series transactions at 'AAA' with a Stable Outlook. The transactions consist of notes backed by pools of first-ranking Australian residential mortgages originated by Mortgage House of Australia Pty Limited and Well Nigh Pty Limited. The notes are issued by Perpetual Trustee Company Limited in its capacity as trustee of Mortgage House Capital Mortgage Trust No. 1 in respect of Mortgage House RMBS Series 2019-1 and Mortgage House RMBS Series 2020-1. The social and market disruption caused by the coronavirus pandemic and related containment measures have not affected the note ratings due to sufficient credit enhancement to cover our expectation of higher defaults and because we regard liquidity protection as sufficient to support the current ratings. The Stable Outlook reflects the notes' liquidity support and ability to withstand the sensitivity to higher defaults stemming from the pandemic. Mortgage House RMBS Series 2019-1 ----A1 AU3FN0048211; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable ----A2 AU3FN0048229; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable ----AB AU3FN0048237; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable Mortgage House RMBS Series 2020-1 ----A1 AU3FN0055919; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable ----A2 AU3FN0055927; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable ----AB AU3FN0055935; Long Term Rating; Affirmed; AAAsf; Rating Outlook Stable KEY RATING DRIVERS Resilient Asset Performance: The 30+ day arrears as of end-2020 were at 2.3% and 0.9% for Mortgage House 2019-1 and Mortgage House 2020-1, respectively, against Fitch's 3Q20 Conforming Dinkum RMBS Index of 1.0%. The arrears figure included loans under Covid-19 hardship process. Transaction performance has been strong, with no losses since closing for both transactions. All rated notes have subordination that is at least 1.3x greater than the 'AAAsf' portfolio loss from the last model run. See the following links for Fitch's pandemic-related credit views and analytical approach: - "Global Economic Outlook - December 2020 ", published on 7 December 2020, available at www.fitchratings.com/site/re/10145707; - "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases - Update", published on 7 December 2020, available at www.fitchratings.com/site/re/10145938; and - "Global SF Rating Assumptions Updated to Reflect Coronavirus Risk", published on 3 April 2020, available at www.fitchratings.com/site/pr/10117224. Analytical notes relevant for Australian and New Zealand RMBS transactions are discussed in the following commentary: - "Fitch Ratings' Approach to Addressing Coronavirus-Related Risks for Australian, NZ RMBS", published on 5 May 2020, available at www.fitchratings.com/site/pr/10120792; - "Fitch Ratings Updates Australia, NZ RMBS Criteria Assumptions on Coronavirus Effects", published on 29 July 2020, available at www.fitchratings.com/site/pr/10130287; and - "Fitch Ratings 2021 Outlook: Australia and New Zealand Structured Finance", published on 3 December 2020, available at www.fitchratings.com/site/re/10143773 Credit Enhancement Supports Ratings: Both transactions are paying down sequentially until pro rata conditions are met, building up credit enhancement. Pro rata conditions include performance triggers that will revert the transactions to sequential paydown if performance deteriorates. Limited Liquidity Risk from Payment Holidays: We have reviewed the ability of the transactions to survive a significant proportion of borrowers taking a payment holiday. The transactions benefit from liquidity facilities, which cover at least seven months of required payments at the current bank-bill spot rate if 100% of the pools are under payment holiday arrangements. This is well above the proportion of mortgages on COVID-19 hardship arrangements at end-2020. The transactions can also use any principal payments received to pay interest if not all borrowers take up payment holidays. Low Operational and Servicing Risk: Mortgage House, established in 1986, is a non-bank financial institution headquartered in Sydney, New South Wales. Fitch undertook an operational review and found that the operations of the servicer were comparable with market standards and that there were no material changes that may affect Mortgage House's ability to undertake administration and collection activities. Mortgage House's collection timelines, policies and procedures are in line with those of other conforming lenders in Australia. Economic Rebound Supports Stable Outlook: Fitch expects loan performance to deteriorate in the near-term amid historically high unemployment, but to continue to support the Stable Outlook on the rated notes. Fitch forecasts Australia's GDP to expand by 3.8% in 2021, with the unemployment rate improving to 6.2%. We expect GDP growth to stabilise in 2022 at 2.7% and the unemployment rate to continue to improve, falling to 5.6%. The key rating drivers listed in the applicable sector criteria, but not mentioned above, are not material to this rating action. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: The rated notes are at 'AAAsf', which is the highest level on Fitch's scale. The ratings cannot be upgraded. Factors that could, individually or collectively, lead to negative rating action/downgrade: A longer pandemic than Fitch expects that leads to deterioration in macroeconomic fundamentals and consumers' financial position in Australia beyond Fitch's baseline scenario. Available credit enhancement cannot fully compensate for higher credit losses and cash flow stresses, all else being equal. The transaction structure supports a lenders' mortgage insurance (LMI)-independent rating for the rated notes of both transactions. LMI is not required to support the ratings due to the level of credit support provided by the lower notes. Fitch's previous rating sensitivities for each respective transaction were discussed in: - Fitch Assigns Final Ratings to Mortgage House RMBS Series 2019-1; Outlook Stable, published 23 May 2019, at www.fitchratings.com/site/pr/10076283 - Fitch Assigns Final Ratings to Mortgage House RMBS Series 2020-1; Outlook Stable, published 1 October 2020, at www.fitchratings.com/site/pr/10137703 Coronavirus Downside Scenario Sensitivity Under Fitch's downside scenario, re-emergence of infections in major economies prolongs the health crisis and confidence shock, prompts extensions or renewals of lockdown measures and prevents a recovery in financial markets. The rated notes have subordination that is at least 1.3x greater than the 'AAAsf' portfolio loss from the most recent model run. Best/Worst Case Rating Scenario International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information as part of its ongoing monitoring. For Mortgage House 2019-1, prior to the transaction closing, Fitch reviewed the results of a draft third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. For Mortgage House 2020-1, prior to the transaction closing, Fitch sought a third-party assessment of the asset portfolio information, but none was made available. Fitch also reviewed a small targeted sample of Mortgage House's origination files and found the information contained in the files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis, according to its applicable rating methodologies, indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. ESG Considerations Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. 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