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Rating Action:

Moody's assigns a Aaa.mx rating to Infonavit's Certificados Bursátiles CEDEVIS 10-5U in Mexico

 The document has been translated in other languages

Global Credit Research - 26 Aug 2010

Approximately MXP6,000 million of debt affected

Mexico, August 26, 2010 -- Moody's de México, S.A. de C.V. (Moody's) notes that as of today, the securities contemplated by this transaction have not been placed in the market. If any assumptions or factors considered by Moody's in assigning the ratings change before closing, Moody's could change the ratings assigned to the certificates.

Issuer: Nacional Financiera S.N.C., Institución de Banca de Desarrollo, acting solely in its role as trustee.

Class A certificates CEDEVIS 10-5U for UDI 1,258,652,000 rated Aaa.mx (sf) (Mexican National Scale) and Baa1 (sf) (Global Scale, Local Currency).

Class B certificates (Constancia Preferente) for UDI 128,960,000 rated Aa2.mx (sf) (Mexican National Scale) and Baa3 (sf) (Global Scale, Local Currency).

RATINGS RATIONALE

Moody's has assigned a rating of Aaa.mx (Mexican National Scale) and Baa1 (Global Scale, Local Currency) to the Class A certificates CEDEVIS 10-5U of Instituto del Fondo Nacional de la Vivienda para los Trabajadores (Infonavit) to be issued by Nacional Financiera S.N.C., Institución de Banca de Desarrollo acting solely in its capacity as trustee; and a rating of Aa2.mx (Mexican National Scale) and Baa3 (Global Scale, Local Currency) to the Class B certificates (Constancia Preferente).

Interest and principal to certificate holders will be payable with cash flow from low income housing mortgage loans originated by Infonavit and assigned to the trust, established under the laws of Mexico.

The ratings are based upon the following factors:

-- The credit quality of the pool, which is comprised of minimum wage-denominated, variable-rate, first-lien, mortgage loans secured by low-income houses located in Mexico.

-- A credit enhancement of 26.8% for Class A certificates in the form of subordination (7.5%) and overcollateralization (19.3%).

-- The legal final of the certificates 10,237 days after the closing date on September 10, 2010.

-- The strong mortgage origination standards of Infonavit and its capability in its role as servicer. Infonavit is rated SQ1- as primary servicer of Mexican low-income mortgage loans.

-- The well-established Mexican laws governing mortgage securitization.

The securitized mortgage pool is comprised of minimum wage-denominated, variable-rate, first-lien, mortgage loans secured by low-income houses located in Mexico. The portfolio reviewed by Moody's is comprised of 34,361 mortgage loans with an aggregate outstanding balance of MXP7,546 million as of July 18, 2010 (cut-off date). As of the cut-off date, the weighted average original loan-to-value (LTV) was 86.9%, the weighted average debt-to-income of the pool was 22.7% and the weighted average current LTV was 81.7%. As of the same date there were no co-financed loans and all the loans were current.

The certificates are denominated in UDIs and have a fixed interest rate. At closing, Class A certificates represented 73.2% of the issuance balance, Class B certificates represented 7.5% of the issuance balance and the residual accounted for the remaining 19.3%. On each payment date, cash collected from interest and principal payments will be used to pay interest on Class A certificates and then to pay interest on the Class B certificates. After making interest payments, cash will be used to amortize Class A. No cash will be used to amortize Class B certificates before Class A certificates are fully repaid.

Moody's considered the characteristics and historical performance of the collateral backing this transaction as well as reported performance data from more than fifteen Infonavit securitizations, the oldest being from 2004. Moody's assessed the collateral characteristics, considering key credit metrics such as original and actual loan-to-value, payment-to-income, seasoning, current delinquency status, payment history, and geographic concentrations, among other factors, and used this information to estimate the pool's future performance over the life of the transaction. In determining potential performance trends for this transaction, Moody's also took into consideration the performance of similar mortgages securitized by this issuer as well as other players in the Mexican market.

Moody's also analyzed Infonavit's origination, collections, customer service and reporting practices as well as its quality and stability as a servicer. Infonavit is rated SQ1- (SQ1 minus) as primary servicer of Mexican low-income mortgage loans. In determining the alignment of interests of the key parties to the transaction, Moody's considered that Infonavit, the initial holder of the subordinated Class B certificates and the residual certificates, should at all times keep an ownership interest on the residual certificates equivalent to at least 10% of the initial balance of the Class A certificates.

When rating mortgage backed securitizations in Mexico, Moody's prepares a loan-by-loan cash flow analysis that considers scheduled interest and principal collections on the mortgages, a distribution of cumulative gross default scenarios on the mortgage portfolio, severity and recovery rate assumptions, an assumed cumulative prepayment percentage, the priority of payments due to investors, and the particular characteristics of the transaction such as credit enhancement levels, reserves, and any type of guarantee benefiting the certificate holders.

The main assumptions underlying Moody's expectations of the future performance of the collateral are the cumulative gross default percentage, the cumulative prepayment percentage, and the severity of loss given a loan default. For cumulative gross defaults, Moody's uses a triangular distribution such that the mortgage cash flows are stressed using a range of default scenarios. The triangular distribution is centered on a most likely cumulative gross default scenario (in this case 30%); defaults are timed along a default curve. Moody's assumed that the cumulative prepayment percentage over the life of this transaction equals 15% and that those prepayments are timed along a prepayment curve. The assumed severity of loss on defaulted loans (in this case, an average of 60%) considers numerous variables, including, but not limited to, the balance of the loan at the time of default, recovery lags, and downward adjustments to the original property value to stress the value of the property at the time of liquidation.

For each one of the cumulative gross default scenarios, Moody's allocates the available cash flows according to the priority of payments described in the transaction documents. Moody's applies varying weights, or probabilities of occurrence, to each of the cumulative gross default scenarios according to the triangular distribution to arrive at an aggregate weighted average expected loss on the certificates. Moody's also calculates a weighted average life for the certificates, which together with its weighted average loss and Moody's idealized loss tables, are utilized to assign a rating to the certificates.

The transaction's performance is heavily dependent on the Mexican economy and on the stability of inflation and employment. Currently, Moody's sovereign risk group rates Mexico's foreign currency debt obligations Baa1 and its local currency debt obligations Baa1. These ratings indicate that the Mexican economy and inflation could be subject to significant variation over time. However, the quality of the originator's underwriting standards, the credit quality of the collateral, and the credit enhancement, mitigate to some extent the potential effects of adverse performance in the Mexican economy and housing markets. According to the legal opinion, the transaction has been structured as a valid sale of the securitized assets to the issuing trust.

Future performance of this MBS transaction is linked to the unemployment rate. Future performance can be affected negatively under an economic slowdown scenario with high levels of unemployment that could pressure Infonavit's ability to collect the loans. The primary source of assumption uncertainty is the unemployment level. If a borrower loses his job in the private sector, Infonavit will not have the ability to deduct the mortgage payment from the borrower's payroll. At the same time, the borrowers' available income to repay the mortgage loan could be substantially reduced as a result of a weak macroeconomic environment.

Moody's Investors Service received and took into account one or more third party due diligence reports on the underlying assets or financial instruments in this transaction and the due diligence reports had a positive impact on the rating.

The V Score for this transaction indicates Medium/High uncertainty about critical assumptions, in line with the Medium/High score for the Infonavit RMBS sector. V Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. High variability in key assumptions could expose a rating to more likelihood of rating changes. The factors contributing to the weak V Score are limited performance history of the emerging market asset class, the limited experience of key transaction parties and the level of legal and regulatory uncertainty. V Scores are intended to rank transactions by the potential for significant rating changes owing to uncertainty around the assumptions due to data quality, historical performance, the level of disclosure, transaction complexity, the modeling and the transaction governance that underlie the ratings.

Moody's parameter sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's-rated structured finance security may vary if certain input parameters used in the initial rating process differed. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the parameter sensitivity analysis. The results generated by rating models are one of many inputs to the rating process. Ratings are determined collectively through the exercise of judgment by rating committees, which evaluate many quantitative and qualitative factors.

Moody's key ratings-model input for this transaction is the stressed cumulative gross default. In the parameter sensitivity analysis, if the assumed cumulative gross default of 30% used in determining the initial rating were changed to 58% or 67%, the model-indicated rating for Class A notes would change from Baa1 /Aaa.mx to Baa3 /Aa3.mx and Ba3 /A3.mx respectively. It should be noted that the cumulative gross default assumption is already a stressed assumption and is higher than Moody's expected case.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: public information, parties involved in the ratings, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Further information on Moody's analysis of this transaction is available on www.moodys.com. In addition, Moody's publishes a weekly summary of structure finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

Moody's Investors Service adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from reliable sources; however, Moody's Investors Service does not and cannot in every instance independently verify, audit or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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

Mexico
Alonso Sanchez
Asst Vice President - Analyst
Structured Finance Group
Moody's de Mexico S.A. de C.V
Telephone:+52-55-1253-5700

Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico

Moody's assigns a Aaa.mx rating to Infonavit's Certificados Bursátiles CEDEVIS 10-5U in Mexico
No Related Data.
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