Liberty’s mortgage bonds receive AAA rating

Liberty Financial has been assigned an AAA rating for three classes of its residential mortgage-backed securities (RMBS).

Standard & Poor’s (S&P) assigned the preliminary ratings to three of the nine classes of Liberty’s Series 2016-1 RMBS to be issued by Liberty Funding.

S&P said the ratings reflect the credit risk of the underlying collateral portfolio as well as the credit support provided to each class of notes.

“Credit support is provided by note subordination and lenders’ mortgage insurance (LMI) on 9.6 per cent of the loans in the portfolio,” it said.

“The assessment of credit risk takes into account Liberty Financial Ltd’s underwriting standards, loan approval process, and servicing quality, along with the support provided by the LMI policies on 9.6 per cent of the loans in the portfolio.

“The LMI policies on the insured loans provide 100 per cent cover for the outstanding principal of each insured loan, accrued interest and reasonable selling costs.”

S&P said the ratings also reflect the benefit of a fixed-to-floating interest rate swap to be provided by NAB to hedge the mismatch between receipts from any fixed rate mortgages and the variable rate RMBS.

[Related: Westpac mortgage bonds receive top rating]

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