SECN 2.4 STS criteria: Homogeneity of underlying exposures

1. (1)

   1For the purposes of SECN 2.2.9R and SECN 2.3.17R, underlying exposures are homogeneous if:

   1. (a)

      they correspond to one of the following asset types:

      1. (i)

         residential loans either secured by one or more mortgages on residential immovable property or fully guaranteed by an eligible protection provider among those under Article 201(1) of the UK CRR and qualify for the credit quality step 2 or above under Part Three, Title II, Chapter 2 of the UK CRR;

      2. (ii)

         commercial loans secured by one or more mortgages on commercial immovable property, including offices or other commercial premises;

      3. (iii)

         credit facilities provided to individuals for personal, family or household consumption purposes and credit facilities provided to enterprises where the originator applies the same credit risk assessment approach as for individuals not covered under (i), (ii) and (iv) to (viii);

      4. (iv)

         credit facilities, including loans and leases, provided to any type of enterprise or corporation;

      5. (v)

         auto loans and leases;

      6. (vi)

         credit card receivables;

      7. (vii)

         trade receivables; or

      8. (viii)

         other underlying exposures which, in the opinion of the originator or sponsor, constitute a distinct asset type based on internal methodologies and parameters;

   2. (b)

      they are underwritten according to standards applying similar approaches for assessing associated credit risk;

   3. (c)

      they are serviced according to similar procedures for monitoring, collecting and administering cash receivables of the originator, or on the asset side of the SSPE; and

   4. (d)

      one or more of the homogeneity factors are applied in accordance with SECN 2.4.2R, where applicable.

2. (2)

   For the purposes of (1)(a), if an underlying exposure corresponds to more than one asset type, that exposure must be assigned only to one asset type in that securitisation.

3. (3)

   Any changes to underlying exposures in a pool that is deemed to be homogenous pursuant to SECN 2.4 will not affect such homogeneity where such changes are for reasons outside the originator’s or sponsor’s control.

1. (1)

   1The homogeneity factors for the asset type referred to in SECN 2.4.1R(1)(a)(i) are the following:

   1. (a)

      ranking of security rights, whereby the pool of underlying exposures comprises only one of the following:

      1. (i)

         loans secured by first ranking security rights on a residential immovable property;

      2. (ii)

         loans secured by lower and all prior ranking rights on a residential immovable property; or

      3. (iii)

         loans secured by lower ranking security rights on a residential immovable property;

   2. (b)

      type of residential immovable property, whereby the pool comprises only one of the following types:

      1. (i)

         income-producing properties; or

      2. (ii)

         non-income producing properties;

   3. (c)

      jurisdiction, whereby the pool comprises exposures secured by residential immovable properties located in the same jurisdiction.

2. (2)

   The homogeneity factors for the asset type referred to in SECN 2.4.1R(1)(a)(ii) are the following:

   1. (a)

      ranking of security rights, whereby the pool comprises only one of the following types of underlying exposures:

      1. (i)

         loans secured by first ranking security rights on a commercial immovable property;

      2. (ii)

         loans secured by lower and all prior ranking rights on a commercial immovable property; or

      3. (iii)

         loans secured by lower ranking security rights on a commercial immovable property;

   2. (b)

      type of immovable commercial property, whereby the pool comprises only one of the following types:

      1. (i)

         office buildings;

      2. (ii)

         retail space;

      3. (iii)

         hospitals;

      4. (iv)

         storage facilities;

      5. (v)

         hotels;

      6. (vi)

         industrial properties; or

      7. (vii)

         other specific type of commercial immovable properties;

   3. (c)

      jurisdiction, whereby the pool comprises underlying exposures secured by properties located in the same jurisdiction.

3. (3)

   The homogeneity factors for the asset type referred to in SECN 2.4.1R(1)(a)(iv) are the following:

   1. (a)

      type of obligor, whereby the pool comprises only one of the following types of obligors:

      1. (i)

         micro, small and medium-sized enterprises; or

      2. (ii)

         other types of enterprises and corporates;

   2. (b)

      jurisdiction, whereby the pool comprises only one of the following types of underlying exposures:

      1. (i)

         exposures secured by immovable property located in the same jurisdiction; or

      2. (ii)

         exposures to obligors with residence in the same jurisdiction.

4. (4)

   The homogeneity factors for the asset type referred to in SECN 2.4.1R(1)(a)(v) are the following:

   1. (a)

      type of obligor, whereby the pool comprises underlying exposures with only one of the following types of obligors:

      1. (i)

         individuals and enterprises where the originator applies the same approach for assessing the credit risk associated with exposures to enterprises as for exposures to individuals;

      2. (ii)

         micro, small and medium-sized enterprises;

      3. (iii)

         other types of enterprises and corporates;

      4. (iv)

         public sector entities; or

      5. (v)

         financial institutions;

   2. (b)

      jurisdiction, whereby the pool comprises underlying exposures to obligors with residence in the same jurisdiction.

5. (5)

   The homogeneity factors for the asset type referred to in SECN 2.4.1R(1)(a)(vi) are the following:

   1. (a)

      type of obligor, whereby the pool comprises underlying exposures with only one of the following types of obligors:

      1. (i)

         individuals and enterprises where the originator applies the same approach for assessing the credit risk associated with exposures to enterprises as for exposures to individuals;

      2. (ii)

         micro, small and medium-sized enterprises;

      3. (iii)

         other types of enterprises and corporates;

      4. (iv)

         public sector entities; or

      5. (v)

         financial institutions;

   2. (b)

      jurisdiction, whereby the pool comprises underlying exposures to obligors with residence in the same jurisdiction.

6. (6)

   The homogeneity factors for the asset type referred to in SECN 2.4.1R(1)(a)(viii) are any of the following:

   1. (a)

      type of obligor;

   2. (b)

      ranking of security rights;

   3. (c)

      type of immovable property; or

   4. (d)

      jurisdiction.

1Under the requirements of SECN 2.4.1R(1)(b) and (c) we would normally expect homogenous residential mortgage portfolios to contain owner-occupier or buy-to-let mortgages but not generally both. However, they may be homogenous where the owner-occupier and buy-to-let mortgages are both underwritten and serviced according to similar standards.