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20 May 2004
MOODY'S ASSIGNS HIPOTECARIA CREDITO Y CASA A SERVICER QUALITY RATING OF SQ2 AS A PRIMARY SERVICER OF LOW-INCOME MORTGAGES IN MEXICO
New York, May 20, 2004 -- Moody's Investor Service (Moody's) has assigned Hipotecaria Credito y Casa ("CyC") an SQ2 rating, as a Primary Servicer of Mexican low-income mortgage loans originated under the Sociedad Hipotecaria Federal ("SHF") programs. The rating is based on CyC's strong servicing results such as high cure rates for delinquent loans, their ability to mitigate losses on a substantial portion of its defaulted borrowers and above average timeline management for judicial and extra-judicial procedures, says Camilo Mendez, Associate Analyst in Moody's Latin American Structured Finance Group.
Moody's SQ ratings provide an independent view of a loan servicer's ability to prevent or mitigate mortgage pool losses across changing markets. The rating scale ranges from SQ1 (strong) to SQ5 (weak).
Hipotecaria Credito y Casa, based in Culicán, Sinaloa, Mexico, started operations in 1997 as a non-bank financial institution/Sofol Mortgage Company. CyC's main activity consists of extending mortgages financed by monies from SHF to low income people -- an important role in the low-income housing market, as there is no rental market in Mexico and this segment of the housing market is not serviced by traditional Mexican banks. As of December 31, 2003, CyC's portfolio consisted of 61,847 loans totaling $10.3 billion pesos. CyC has a strong market position, currently maintaining a 20.3% market share for residential mortgages among Sofols, which ranks them third overall in Mexico.
As of December 31, 2003, CyC operates through 30 collection branches and 87 payment booths, located in low-income housing developments. Currently, they have 307 employees in the collections department, including 146 account executives. CyC divides its entire portfolio among the account executives, which are responsible for collections on a given account throughout the life of the loan. The account executive must determine if the borrower is ultimately willing and able to service the loan. If the borrower is unable to service the loan, than CyC will pursue various exit strategies with the borrower. If the borrower is deemed unwilling to make payments, than the account will be transferred to a specialized team of collectors who will apply more pressure on the borrower. This team is comprised of 27 specialize collectors, who will also pursue exit strategies if they are unable to convince the borrower to pay his or her debt.
Moody's servicer ratings are differentiated in the marketplace by focusing on performance measurement. Every rating incorporates an assessment of delinquency transition rates, foreclosure timeline management, loan cure rates, recoveries, loan resolution outcomes, and REO management - all critical indicators of a servicer's ability to get maximum returns from mortgage portfolios.
Relative to its peers, CyC has performed particularly well in curing delinquent loans. In a static pool of UDI denominated SHF loans, CyC had 2,442 delinquent loans out of a pool of 17,589 loans one year ago, representing 14% of the total pool. CyC has been able to cure 1,579 of these 2,442 loans in one year, resulting in a 53% cure rate. This cure rate for delinquent loans was significantly higher that the 25-30% cure rate range achieved by SQ3 rated low-income servicers in Mexico. In addition, CyC had 625 loans over 90 days delinquent one year ago which represented 4% of the entire pool. CyC was able to cure 216 of these loans, which represented 35% of the loans over 90 days delinquent. This cure rate was significantly higher than the 10-12% cure rate range for 90+ day delinquent loans serviced by SQ3 rated Mexican low-income servicers.
CyC also performed better than most of its Mexican peers in terms of resolving defaulted loans and CyC performed above average in terms of timeline management for loss mitigation, which translates to lower accrued interest and ultimately lower losses on defaulted loans.
CyC has various techniques and mechanisms to protect against losses from defaulted loans. The mechanism that CyC uses most frequently is to sell the property on behalf of the borrower without ever repossessing the property. CyC used this method on 41% of the resolved delinquent loans over the past year. Typically, CyC does not suffer any losses when using this mechanism because they do not incur any expenses and will not complete the transaction unless the new owner pay's the entire outstanding balance plus any accrued interest of the previous borrower.
CyC will also mitigate losses by substituting a delinquent borrower with a new one. The new borrower will take over the mortgage of the original borrower including all of its terms and conditions. CyC used this method for 32% of its resolved loans over the past year. Similar to sales on behalf of the borrower, CyC does not suffer losses using this mechanism because they do not have any external costs and will not complete the transaction unless the new borrower pays for all of the missed payments of the previous borrower as a down-payment. The third most frequently used loss mitigation technique is deed-in-lieu's, which account for 22% of all resolved delinquent in the past over. On average, CyC experienced 45% losses (calculated over original balance) when performing a deed-in-lieu. Judicial foreclosures are used less frequently because the court adjudication process can take several years in Mexico, resulting in higher losses.
Moody's servicer rating also considers the company's ability to maintain its high quality servicing in an economic downturn. CyC's (Baa2.mx national scale issuer rating with a positive outlook) financial strength is stable, based on strong market presence with an experienced and conservative management, say's Philip Kibel, Vice President at Moody's Real Estate Finance Group.
Hipotecaria Credito y Casa servicer quality rating- SQ2
Details of Moody's analysis can be found in the forthcoming Hipotecaria Credito y Casa Servicer report.
Structured Finance Group
Moody's Investors Service
Camilo M. Mendez
Structured Finance Group
Moody's Investors Service
No Related Data.
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