DBRS Publishes Canadian HELOC Securitization Methodology

DBRS has today released its methodology for rating Canadian home equity line of credit (HELOC) securitizations. The publication of this methodology is part of DBRS’s continued effort to provide market participants with insight into the rationale behind DBRS’s rating opinions.

A HELOC combines the secured nature of residential properties with the flexibility and convenience of a line of credit. HELOC products in Canada are generally underwritten as a mortgage alternative because the flexibility of borrowers to draw and pay down offers better cash flow management. HELOCs in Canada are usually without predetermined amortization schedules, payable on demand and only available to prime borrowers, making them vastly different from similarly named products available in the United States until recently.

The methodology outlines the analytical approach that DBRS takes to rating HELOC securitizations in Canada and discusses the key qualitative and quantitative elements in the evaluation process. First, a review of the characteristics of HELOCs, including the terms and payments, the credit limit and the product differences between Canada and the United States. Second, a look at the various elements that DBRS reviews in assessing the risk profile of HELOCs as an asset class in Canada. Third, a summary of core enhancement considerations, such as the various forms of enhancement acceptable and a cash flow analysis. Key performance metrics and assumptions are provided in accordance with the rating scales used by DBRS to determine a particular rating for each securitization.

Each DBRS rating is based on an analysis of the underlying assets of the securitization, the transaction parties involved, the legal and funding structure and the credit enhancement available. These considerations are assessed under various stress scenarios to ensure that commensurate enhancement is available.

The methodology providing DBRS’s processes and criteria is available by contacting us at info@dbrs.com.

MEDIA CONTACT
Caroline Creighton
Senior Vice President,
Communications and Media
+1 416 597 7317
ccreighton@dbrs.com