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Rating Action:

MOODY'S ASSIGNS PRELIMINARY RATING TO MEXICO'S FIRST SECURITIZED RMBS (HIPOTECARIA SU CASITA AND GMAC HIPOTECARIA) TRANSACTION

11 Nov 2003
MOODY'S ASSIGNS PRELIMINARY RATING TO MEXICO'S FIRST SECURITIZED RMBS (HIPOTECARIA SU CASITA AND GMAC HIPOTECARIA) TRANSACTION

Approximately US$54 million of Debt Securities Affected.

New York, November 11, 2003 -- Moody's Investors Service has assigned a preliminary rating of Aaa.mx on the Mexican national scale and a preliminary global local currency rating of Baa1 to the Class A certificates issued by Banco J.P. Morgan SA, acting solely in its capacity as trustee (the issuer). The Class A certificates along with the Residual certificates will be backed by a pool of residential mortgage loans extended to low-income borrowers located in Mexico and originated by Hipotecaria Su Casita (Su Casita or HSC) and to middle-income borrowers by GMAC Hipotecaria (GMAC). Interest and principal on the certificates are payable from the assets of the trust which isolates the underlying assets from the risks associated with HSC and GMAC.

Su Casita (rated A3.mx by Moody's), founded in 1994, was the first Sofol to be created in Mexico to grant loans under SHF/Fovi financing programs (low-income and low-middle income borrowers). Su Casita's main activity consists of extending mortgage loans financed by monies from SHF/Fovi to low-income individuals.

GMAC Hipotecaria (not rated by Moody's) was incorporated in February 15, 2000 in Mexico. GMAC Hipotecaria is owned 100% by GMAC RFC US. GMAC Hipotecaria was created to provide financing for homebuyers as well as for home builders. Currently, 100% of its funding comes from the capital markets because the types of borrowers financed by GMAC are middle-income borrowers.

GMAC Hipotecaria mortgage loans do not have mortgage insurance from SHF, but they do have a reserve that is funded by the borrower at the time the loan is granted. The amount is equivalent to 5% of the original loan amount and remains constant through the life of the loan. This reserve fund helps to ease the severity on the GMAC loans.

The complete rating actions are as follows:

RATING ACTION

Originators: Hipotecaria Su Casita S.A. de C.V. and GMAC Hipotecaria S.A. de C.V

Approximately UDIs 177.9 Million Fixed Rate Class A Mortgage Backed Notes, rated (P)Aaa.mx

STRUCTURE

Moody's preliminary rating of Aaa.mx primarily reflects, the strength of the structure, the credit support in the transaction, the strong mortgage origination standards, sound capability of Su Casita in its role as a servicer and the well-established Mexican laws relating to mortgage securitization, say Moody's Vice President, Brigitte Posch.

The issuer will issue two classes of fixed-rate certificates - Class A and a Residual - in the amount of 183.4 million UDI or Unidades de Inversión. UDI are investment units whose value are inflation-linked and, thus, maintain the value of the debt in real non-inflationary terms.

Class A constitutes 97% of the bond balance and the Residual certificates accounts for 3%. The certificates are backed by monthly payments on individual mortgages located in Mexico as well as a partial credit support provided by FMO.

85% of excess spread amount after certain payments in the waterfall will be distributed to pay down the Class A certificates. If the Residual certificates amount over the outstanding balance of the Class A is lower than 5% and defaulted loans are greater than 3%, then 95% of the excess spread will be trapped in the deal to pay down Class A certificates. The remaining amount will be released to the originators unless the partial credit support is used, in which case any remaining amount will be directed to reimburse the partial credit support provider.

The excess spread in this deal is being used to cover losses as well as to reduce the legal final in the deal to 16 years, according to Posch.

FMO provides an unconditional, irrevocable partial credit guaranty, which covers timely interest and target principal payments up to an amount of 9% of the outstanding Class A balance. If either (1) defaulted loans are greater than 3% or (2) there is a draw under the partial support, the amount outstanding in the guarantee will freeze (not decline) until such trigger is cured, says Posch.

If funds in the distribution account are not sufficient to cover the next target principal and or interest payment, the shortfall will be covered by the credit support provided by FMO up to the 9% cap described above.

Credit support consists of 3% credit enhancement in the form of subordination of the Residual certificates for the Class A certificates.

In assigning the rating, Moody's also considered factors specific to mortgage-backed transaction such as loan-to-value ratios, borrower profile, delinquency/defaults related to Su Casita's total mortgage portfolio and debt-to-income ratios, as well as factors specific to Mexico, such as the possibility of an increase in Mexican interest rates and inflation, which could affect the obligors' payment obligations and the performance of the securitized pool, says Posch.

Securitized Pool

Su Casita and GMAC Hipotecaria underwrite loans according to their set of underwriting guidelines, and both originators underwrite them in a very similar way.

The two companies do not have yet a way to weigh all the risk factors inherent in a loan, and exceptions are not automatically evaluated through compensating factors grid, says Posch. For the moment, their managements emphasize loan analysis and the borrowers' profile, as well as the compensating factors definition. The latter includes the level of documentation provided, as well as the property being used to collateralize the debt such as the occupancy status, type of property and others, which is being analyzed and is defined on a case-by-case basis by Su Casita and GMAC Hipotecaria individual credit committee.

Moody's is comfortable with this approach due to other offsetting factors such as (1) Credit bureau investigation; (2) Social and economic verification, which is done by a third party to verify applicant's data and documents. The third party verifies the information on the application by contacting the human resources department of the applicant's job, by meeting with the personal references, and by going to the residence of the applicant; (3) Credit analysis is performed by the lead originator and is then sent to the internal auditors, who will verify all the information received. Subsequently, the mortgage loan can only be approved by an individual credit committee; and (4) Property appraisal.

According to Posch, the main difference between Su Casita and GMAC Hipotecaria lies in the size of the loans they originate. Out of all the loans included in the pool to be securitized, the average size of loans originated by Su Casita is approximately UDI 76,000, while the average size of the loans originated by GMAC Hipotecaria (20% of the pool) is approximately UDI 240,000. In stress scenarios, Moody's model assigns a higher weight to a larger loan than to a smaller loan of the same credit quality, which increases the overall probability of default in the pool.

The residential mortgage loans are UDI-denominated, fixed-rate, first-lien mortgages secured by residential properties located in Mexico. The loans are considered relatively strong, with a weighted average original LTV of 78.67%, and low weighted average DTI of 18.46%. In addition, the loans were made to borrowers with relatively clean credit histories. 63% of the loans in the portfolio to be securitized were originated by Hipotecaria Su Casita, and 29% was originated by GMAC Hipotecaria. The remaining 8% was originated by Financiamento Azteca prior to Azteca's merger with Su Casita.

The weighted average original LTV of the entire pool is 78.67%. In comparison, the average CLTV in the US Prime market is 72%, says Posch. Additionally, approximately 42% of all loans in the pool have a CLTV of between 85% and 90%.

In its analysis, Moody's also considered that the Loans are denominated in UDIs, while the borrowers' income is generally denominated in pesos and re-adjusted by VSM (minimum salary). Therefore, if inflation is high, the borrowers' payment obligations under the mortgage loans could increase significantly.

Nonetheless, SHF provides a swap from UDI to VSM to the Trustee on behalf of each borrower in this transaction which mitigates this risk.

There is no back-up servicer obligated to act as a servicer in the event HSC is no longer able to fill this role. Unlike in most U.S. deals, the Trustee does not have back-up servicing responsibilities with respect to the mortgage loans. However, in Moody's opinion, the presence of other Sofoles with mortgage loan servicing capabilities within the Mexican market, the relatively small probability that HSC (SQ2 rating by Moody's) will be unable to service the loans mitigates the risk that there would be no servicer available to fill HSC's role and is consistent with the Baa1 preliminary global local currency rating. In addition, according to transaction documents, GMAC and FMO have the right to monitor the performance of the servicer as well as securing a successor back up servicer in the event HSC no longer performs this function. Furthermore, the presence of several servicer triggers in this transaction prompt the removal of the servicer. Although such servicer triggers do not automatically assign someone else to step in, Moody's believes that there is an attractive economic incentive for other servicers to step in as the current servicer fee is greater than what the market normally charges (1.5%)

More details about the transaction will be published in Moody's upcoming Pre Sale Report, which will be available on Moody's website, http://www.moodys.com. Please use Quick Search, found in the upper right hand corner of the home page, to locate the issuer and associated research.

New York
Linda Stesney
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Brigitte Posch
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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