KBRA Releases Research – Spanish RPL RMBS: Resilient Performance and an Established Asset Class
KBRA releases research that examines the key characteristics of Spanish reperforming loan (RPL) residential mortgage-backed securities (RMBS) transactions rated by KBRA, focusing on factors that may influence credit performance as the transactions season. The report also discusses the composition of the underlying mortgage portfolios, including restructuring profiles, arrears trends, pay rates, leverage, seasoning, and kept-rate performance, as well as the structural features designed to mitigate liquidity risk and credit losses.
Key Takeaways
- Spanish RPL portfolios typically include a high proportion of restructured loans, which generally carry higher re-default risk than loans with no restructuring history. The share of restructured loans is therefore an important portfolio characteristic, alongside restructure type, time since restructuring, kept rate, arrears status, and pay-rate performance.
- Restructure type helps indicate the nature of prior borrower financial stress. Grace period restructures may indicate more acute prior stress and create payment shock risk when scheduled payments resume, while term extensions may provide a more durable reduction in monthly debt service where affordability has weakened.
- Restructure age and kept rate are most informative when the post-restructure observation period includes borrower stress, such as the higher interest rate environment in 2023-24, elevated cost-of-living pressure, or the payment shock that can follow the end of a grace period.
- Arrears data are most useful when considered alongside pay rates. Sustained pay rates above 100% can indicate curing behaviour, while weaker pay rates in deeper arrears may signal continued deterioration and a higher likelihood of foreclosure.
- Spanish RPL RMBS structures use liquidity and deleveraging features—including reserve funds, principal-to-interest mechanisms, interest rate hedges, target amortisation, arrears-based provisioning, and junior interest subordination triggers—to address payment shock risk, basis risk, and limited excess spread. Together with seasoned collateral and ongoing amortisation, these features support KBRA’s expectation for broadly stable performance over the next two to three years.
- Performance data show transaction-level dispersion, with arrears trends varying by vintage and portfolio profile. While some transactions have experienced higher arrears, pay-rate trends indicate that many borrowers continue to make payments, and cumulative losses remain low across the transactions.
Click here to view the report.
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About KBRA
KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.
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