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:
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
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,
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
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
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.
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
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
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.
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service