Application criteria for acceptance of Residential Mortgage Backed Securities in Reserve Bank Domestic operations

 Updated 17 August 2020

Thank you for your interest in the Reserve Bank of New Zealand accepting your issuance as security in its liquidity operations.

An update with regard to RMBS reporting and operations in the context of deferred payment mortgages is included below.

Approval

To obtain or maintain repo-eligibility in the Reserve Bank’s domestic market facilities, the following actions require Reserve Bank approval:

  1. New issuance of Internal RMBS;
  2. Upsize of existing Internal RMBS;
  3. Where the total amount of sale of loans to, or repurchases from, the loan pool between monthly report dates exceeds 2.5% of the outstanding pool amount as per the last monthly report date;
  4. Changes to the capital structure or the Notes on issue;

Failure to obtain approval for ii, iii, iv will result in repo-eligibility being revoked.

Please provide the information noted below and attest to the following statements:

Information

Background on the issuer (including all ratings);

Details of the issue, as per an Issue Notice, Prospectus and/or Information Memorandum. This should include:

  • Full legal name of Issuer;
  • Physical and postal address;
  • Description;
  • Issue size;
  • Pricing convention (full details)
  • Currency;
  • Trustee;
  • Arranger;
  • Dealers;
  • Registrar;
  • Paying agent;
  • Term;
  • Clearing system;
  • Governing law;
  • Redemption;
  • Payments and record date; and
  • Listing (Stock exchange if any).

Attestation

Confirm that the issue meets the following criteria:

  1. Issues must have a long term AAA rating from at least one acceptable rating agency – this must be a public rating.
  2. New Zealand originated first mortgages on New Zealand residential properties.
  3. The securitised mortgages must be owned by a bankruptcy remote special purpose vehicle (SPV).
  4. The securitised mortgages may have a maximum indexed loan to value ratio of 80%, or, where a loan to value ratio is or has become greater than 80%, the mortgage must be insured or it has to be repurchased by the originator. The insurance provider providing lender's mortgage insurance must be an unrelated party with an insurer financial strength rating of at least A (Standard & Poor's or FitchRatings) or A2 (Moody's Investors Services) and the insurance must cover all losses realised in a default on the mortgage up to amount of no less than 40% of the loan value.
    1. The value of Other Secured Loans must be included in the calculation and reporting of LVR. “Other Secured Loans” means loans outside the pool (or, as the case may be, portions of those loans) that are; (i) secured against the same property as one or more loans inside the pool (Pool Loans); and (ii) rank equally or senior to Pool Loans (in terms of credit hierarchy) on the default of the borrower.
    2. Where an Originator has a Covered Bond programme, the same indexing methodology must be applied. Where the Originator does not have a Covered Bond programme, please contact the RBNZ Risk Unit to agree the methodology to be applied.
  5. Loans may be included in the pool only if the originator has, prior to loan approval and as part of the loan origination and approval process, documented, assessed and verified the ability of the borrower to meet their repayment obligations.
  6. Only loans that are performing may enter the pool (Non-performing loans are those that are 90 days or more past due).
  7. RMBS must be lodged and settled in NZClear.

The requirement to use Indexed LVR in all reporting will be in effect from 1 July 2020.

Issuers are required to submit a monthly report to the Reserve Bank, which provides updated details on the pool (use the reporting template below).

There is a 5% limit on the total of assets, other than mortgages, that can be held in the trust. If the trust is found to contain more than 5% of ‘other assets' held with the originating bank, the notes may lose their eligibility status with the Reserve Bank. If the total of ‘other assets' is held constantly around the 5% level with the originating bank, then the Reserve Bank, at its discretion, may increase the haircut applied to this security by a margin of up to 5%..

The Reserve Bank will also be particularly concerned if the level of cash held within the trust is above 5% and is deposited in the originator bank. Where cash holdings held with the originating bank accumulating in the current reporting period exceeds the 5% limit, these cash holdings are expected to be reinvested in full into new mortgage loans as of the next sale date, conditional on the next sale date being no later than 30 days following the last report date.

The Reserve Bank expects that steps will be taken to maintain the quality of the pool by replacing non-performing loans or loans that exceed an Indexed loan to value ratio of 80%. The Reserve Bank would not expect the combined amount of non-performing loans or loans exceeding an indexed loan to value ratio of 80% to exceed 1% of the outstanding pool amount and reserves the right to adjust the haircut applied, or review repo eligibility status, should this occur. Please refer to the attestation requirements for a definition of Indexed LVR.

The Bank will value RMBS at par and will apply the fixed haircut (as specified on the Eligible securities and haircuts page) to the par value of the securities delivered to the Bank as collateral. The Bank assumes that the coupon on RMBS will be broadly in line with the net yield on the underlying mortgage pool and reserves the right to adjust the haircut for securities that don't meet this criterion.

As is usual for securities in NZClear, only NZClear members who have a valid resident withholding tax certificate are allowed to hold these securities in the NZClear depository.

The Reserve Bank reserves the right to refuse an application for any reason and is not required to disclose such reasons. Notwithstanding this, the RBNZ will be as transparent as possible with regard to its decision. In particular, it should be noted that if the credit rating of the issuer/issue falls below the Reserve Bank's threshold, then the issue will cease to be eligible in the Reserve Banks' operations.

The above information must be signed by authorised signatories of the Issuer or Originator. The Reserve Bank will require a list of authorised signatories for the Issuer or Originator and evidence satisfactory in form and substance to the Reserve Bank of the authority of the authorised signatories of the Issuer or Originator to execute notices or communications issued in connection with any documentation required to give effect to the Issuer’s programme. Regular monthly reporting is exempt from the requirement to be signed by an Authorised Signatory.

Please email applications and monthly reports to mktops@rbnz.govt.nz and riskunit@rbnz.govt.nz

RBNZ decision on Deferred Payment Mortgages in the context of RMBS asset pools

17 August 2020

The Government and retail banks have made deferred mortgage payments available in response to the COVID-19 pandemic. This deferral includes principal and interest payments. To support this the RBNZ has decided that loans impacted by the temporary deferral (Deferred Payment Mortgages) can be included in Internal RMBS loan pools until 31 March 2021. Consistent with other RBNZ advice, Deferred Payment Mortgages should not be reported as being in arrears.

The following requirements have been added until further notice:

  1. Until 31 March 2021, Deferred Payment Mortgages can remain in the RMBS loan pool or be sold into the RMBS loan pool, subject to the following restriction:
    1. The proportion of Deferred Payment Mortgages in the RMBS loan pool must not exceed the proportion of Deferred Payment Mortgages in the residential mortgage book of the originator. The RBNZ expects reasonable steps to be taken to ensure that the amount of Deferred Payment Mortgages in the RMBS pool is not excessive.
  2. As part of monthly reporting on RMBS asset pools, from 30 June 2020 the RBNZ will require reporting of:
    1. Principal of Deferred Payment Mortgages as a proportion of the total principal in the RMBS pool by:
      • Total deferrals (all types) in each LVR bucket (percentage)
      • Principal and interest deferrals per LVR bucket (percentage)
      • Principal only deferrals in each LVR bucket (percentage)
    2. Principal of Deferred Payment Mortgages as a proportion of the total principal of the originator residential mortgage book by:
      • Total deferrals (all types) in each LVR bucket (percentage)
      • Principal and interest deferrals per LVR bucket (percentage)
      • Principal only deferrals in each LVR bucket (percentage)
    The reporting requirements in a. and b. are to be included as part of monthly reporting. The LVR buckets for these reporting requirements are the same as those for regular monthly reporting. The reporting template (updated 7 May 2020) provide reporting fields for these metrics in rows 84 to 98.

Haircuts, valuation method and existing eligibility criteria for RMBS are unchanged. Issuers are reminded that there is a limit of 1% of the RMBS asset pool that can be either high LVR (>80%) or non-performing (>90 days in arrears).