RBS 2011 Annual Report Download - page 186

184 RBS Group 2011
Risk management: Credit risk continued
Balance sheet analysis continued
Residential mortgage-backed securities
RMBS are securities that represent an interest in a portfolio of residential
mortgages. Repayments made on the underlying mortgages are used to
make payments to holders of the RMBS. The risk of the RMBS will vary
primarily depending on the quality and geographic region in which the
underlying mortgage assets are located and the credit enhancement of
the securitisation structure. Several tranches of notes are issued, each
secured against the same portfolio of mortgages, but providing differing
levels of seniority to match the risk appetite of investors. The most junior
(or equity) notes will suffer early capital and interest losses experienced
by the referenced mortgage collateral, with each more senior note
benefiting from the protection provided by the subordinated notes below.
Additional credit enhancements may be provided to the holder of senior
RMBS notes, including provided by monoline insurers.
The main categories of mortgages that serve as collateral to RMBS held
by the Group with related vintages are set out below and described in the
Glossary on pages 476 to 483. The US market has more established
definitions of differing underlying mortgage quality and these are used as
the basis for the Group's RMBS categorisation.
The Group classifies RMBS as sub-prime or Alt-A based on industry
standard criteria, including Fair Isaac Corporation scores (FICO), level of
documentation and loan-to-value (LTV) ratios of the underlying mortgage
loans. RMBS are classified as sub-prime if the mortgage portfolio
comprises loans with FICO scores between 500 and 650 with full or
limited documentation. Mortgages in Alt-A RMBS portfolios have FICO
scores of 640 to 720, limited documentation and an original LTV of 70%
to 95%. The FICO score is the determining factor in the classification of
the Group’s RMBS as sub-prime or Alt-A.
The table below analyses the vintage of the Group's carrying value of
RMBS portfolios by geography and classification.
By geography By classification
US UK
Othe
r
Europe RoW Total
Government
sponsored
Covered
bond Prime
Non-
conforming Sub-prime
2011 £m £m £m £m £m £m £m £m £m £m
2004 and earlier 2,435 56 1,054 42 3,587 2,344 622 428 80 113
2005 1,661 161 3,262 26 5,110 1,652 2,333 539 382 204
2006 575 1,407 4,944 97 7,023 1,681 3,272 1,224 628 218
2007 1,540 2,689 3,874 36 8,139 3,588 1,293 1,560 1,482 216
2008 1,154 24 373 127 1,678 1,428 — 173 75 2
2009 1,364 58 7 1 1,430 1,209 — 163 7 51
2010 and later 21,858 893 562 141 23,454 21,671 — 1,658 25 100
30,587 5,288 14,076 470 50,421 33,573 7,520 5,745 2,679 904
2010
2004 and earlier 4,405 175 1,057 50 5,687 4,148 641 678 90 130
2005 2,579 176 3,435 28 6,218 2,379 2,410 634 567 228
2006 1,082 2,249 5,460 121 8,912 2,106 3,451 2,129 736 490
2007 2,576 2,370 4,135 33 9,114 4,774 1,352 1,280 1,477 231
2008 2,314 58 420 155 2,947 2,598 18 223 104 4
2009 and later 14,922 410 116 10 15,458 14,359 — 803 161 135
27,878 5,438 14,623 397 48,336 30,364 7,872 5,747 3,135 1,218
2009
2004 and earlier 8,504 293 1,760 33 10,590 7,951 752 1,460 99 328
2005 4,221 783 4,252 74 9,330 3,801 2,582 2,173 510 264
2006 1,847 3,116 7,449 216 12,628 2,691 4,135 4,514 690 598
2007 1,844 2,957 5,916 60 10,777 4,394 1,585 2,842 1,529 427
2008 and later 15,249 10 510 249 16,018 15,067 18 511 215 207
31,665 7,159 19,887 632 59,343 33,904 9,072 11,500 3,043 1,824
Business review Risk and balance sheet management continued