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Announcement:

Moody's confirms Aaa.mx (sf) ratings of FOVISSSTE's TFOVIS Mexican RMBS

10 Sep 2012

Mexico, September 10, 2012 -- Moody's de Mexico (Moody's) has confirmed the Aaa.mx (sf) / Baa1 (sf) ratings of twelve Mexican RMBS certificates sponsored by FOVISSSTE that were previously on review for possible downgrade. The collateral backing the affected transactions consists of first-lien, fixed-rate mortgages denominated in multiples of minimum wages (Veces Salarios Mínimos) and granted to primarily low-income borrowers employed in the public sector. FOVISSSTE services these mortgages via automatic payroll deductions.

The complete rating action is as follows:

Originator and Servicer: Fondo de Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (FOVISSSTE)

Master Servicer: Administradora de Activos Financieros S.A. (ACFIN)

Issuer: HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, División Fiduciaria (HSBC), acting solely in its role as trustee.

-- Confirm the Aaa.mx (sf) (Mexican National Scale) and Baa1 (sf) (Global Scale, Local Currency) ratings of the Class A certificates from the following twelve transactions: TFOVIS 09U, TFOVIS 09-2U, TFOVIS 09-3U, TFOVIS 10U, TFOVIS 10-2U, TFOVIS 10-3U, TFOVIS 10-4U, TFOVIS 11-U, TFOVIS 11-2U, TFOVIS 11-3U, TFOVI E11U, TFOVIS 12U.

RATINGS RATIONALE

Today's rating action reflects:

i. The results of an independent third party review conducted by PricewaterhouseCoopers, S.C. (PWC) for all transactions (with the exception of TFOVIS 12U since results are pending); in particular, PWC verified:

- FOVISSSTE's and ACFIN's process to reconcile the cumulative amounts that should have been deposited to the trusts since deal inception versus the cumulative amounts that FOVISSSTE had actually deposited,

- that starting in 2012, FOVISSSTE began depositing collections to the trust accounts in accordance with the deposit instructions in ACFIN's collections reports,

- that all the required collections reports immediately after the transactions' cut-off dates had been published,

- that FOVISSSTE had not been collecting a duplicate servicing fee despite the appearance of this situation in the collections reports prior to the publication of the corrected reports,

ii. The steps that FOVISSSTE and ACFIN have taken to resolve certain reporting inconsistencies in the securitizations' collections reports

- As a result of these actions, since February 2012, the cumulative amounts that FOVISSSTE should have deposited in each of the trust accounts per ACFIN's restated collections reports match the cumulative amounts that FOVISSSTE had deposited

- Since March 2012, FOVISSSTE has been depositing collections in accordance with the deposit instructions in ACFIN's collections reports

iii. The implementation of process improvements in the preparation of the collections reports, such as 1) the strict timelines that FOVISSSTE is now adhering to for delivering the required information to ACFIN so that ACFIN can process the collections reports on a timely basis, 2) the monthly, independent reconciliations that FOVISSSTE is now performing in order to verify the accuracy of the information contained in ACFIN's collections reports, and 3) recent changes to the transactions' legal documents that add clarity around the servicer advance calculation that ACFIN independently calculates.

iv. The recent improvements in FOVISSSTE's servicing operations, including 1) the significant capital investment in technology, and 2) the new tools available to the team of approximately 40 employees that the Director of Finance has headed since 2011 which enable this team to more closely monitor whether employers are sending collections and loan-by-loan reconciliation reports on a timely basis; for example, FOVISSSTE recently implemented a new and dynamic monitoring system that allows this team to more easily identify employers with delays

v. FOVISSSTE's incentive to perform its duties as servicer given its role as a Mexican government-related institution with a social mission to alleviate the housing shortage by granting mortgages to primarily low-income borrowers

vi. FOVISSSTE's strong alignment of interests with investors, given its ownership in the residual certificates, which represent at least 31% of the securitized pool balance of each transaction and which FOVISSSTE must retain

vii. FOVISSSTE's financial stability, given its status as a government-related institution and its predominance as the second largest mortgage originator in Mexico

OVERVIEW OF REPORTING INCONSISTENCIES AND CORRECTIVE MEASURES

Moody's had previously placed the certificates on review for possible downgrade, citing inconsistencies that raised concerns about the quality of the information in the transactions' collections reports. The issues that had been identified by Moody's and their resolution are explained below.

In summary, today's rating action takes into account that since February 2012, the cumulative amounts that FOVISSSTE should have deposited in each of the trust accounts per ACFIN's restated collections reports match the cumulative amounts that FOVISSSTE has deposited. PWC verified this reconciliation process as part of its review. In the case of trusts with surpluses (where FOVISSSTE's cumulative deposits exceeded the cumulative amounts that it should have deposited per the restated collections reports), FOVISSSTE received reimbursement of those amounts. In the case of trusts with deficits, FOVISSSTE deposited additional funds to make up for the shortfalls.

FOVISSSTE'S DEPOSITS TO TRUST ACCOUNTS DIFFERED FROM ACFIN'S DEPOSIT INSTRUCTIONS

The first reporting inconsistency Moody's had identified was that in some periods, FOVISSSTE deposited into the trust accounts amounts that were significantly greater than the amounts that ACFIN instructed in the collections reports, while in other periods, it deposited amounts that were considerably lower. According to FOVISSSTE, rather than depositing collections per ACFIN's instructions, it had previously been making deposits based on its own internal calculation of estimated collections. It had been doing so because the collections report with ACFIN's deposit instruction was typically not ready on time. This was largely due to the additional time that FOVISSSTE required to provide ACFIN with the loan-level information that ACFIN requires in order to prepare the reports.

In taking today's rating action, Moody's considered that starting in February 2012, and as verified by PWC, FOVISSSTE has been making deposits strictly in accordance with ACFIN's collections report instructions. Moody's also considered that according to FOVISSSTE and ACFIN, FOVISSSTE is now adhering to strict deadlines for delivering the required information to ACFIN so that ACFIN can process the collections reports on a timely basis.

For background, using loan-level information that FOVISSSTE provides as primary servicer, the master servicer (ACFIN) prepares the transactions' collections reports on FOVISSSTE's behalf as its delegated party. Both FOVISSSTE and ACFIN must validate the data in the collections reports, in which ACFIN reconciles FOVISSSTE's monthly mortgage collections and instructs FOVISSSTE how much to deposit into the securitization trust accounts. In taking today's rating action, Moody's considered that according to FOVISSSTE, it is now independently calculating and verifying the information contained in ACFIN's collections reports. Moody's views this as a positive change that will mitigate the risk of discrepancies in future collections report.

SERVICING FEE PAYMENT INSTRUCTIONS WERE DUPLICATED

The second reporting inconsistency that Moody's had identified was that the collections reports previously showed that FOVISSSTE had been netting and withholding its servicing fee from the amount that it deposited to the trust. This resulted in a duplicate servicing fee payment instruction, because the trustee already accounted for these fees by distributing them from the trust account in accordance with the trust agreements.

In taking today's rating action, Moody's considered that according to FOVISSSTE, it had never actually deducted its servicing fee from the totals it deposited to the trust despite the netting calculation in the collections reports since it was not depositing based on the reports. Moody's also considered that PWC did not find any indication that FOVISSSTE had been collecting a duplicate fee. Further, ACFIN's restated collections reports now exclude this erroneous servicing fee payment instruction.

ACFIN DID NOT ALWAYS PUBLISH REPORT FOR THE MONTH AFTER THE POOL CUT-OFF DATE

The third reporting inconsistency that Moody's had identified was that for some transactions, ACFIN did not publish the collections report for the month immediately after the pool's cut-off date. This had distorted our understanding of the cumulative amounts that FOVISSSTE should have deposited into each of the trusts since the transactions' closing dates.

In taking today's rating action, Moody's considered that ACFIN has since published the missing collection reports, as verified by PWC.

FOVISSSTE OVER-DEPOSITED WHAT IT CONSIDERED THE EMPLOYERS' 5% CONTRIBUTION; PREVIOUSLY UNCLEAR WHETHER THE TRUSTS HAD REIMBURSED FOVISSSTE

The last issue that Moody's had identified (which was disclosed in early 2011) was that prior to January 2011, FOVISSSTE had inadvertently been over-depositing amounts it considered to be a portion of the employers' 5% contribution on the mortgages. ACFIN has indicated in the 2011 collections reports that a portion of the monthly collections since January 2011 had been returned to FOVISSSTE as partial reimbursement for these excess deposits. However, FOVISSSTE had not actually been receiving these reimbursements since it was not following the instructions in the collections reports.

In taking today's rating action, Moody's considered that PWC did not find any indication that FOVISSSTE had been collecting these reimbursements. ACFIN's restated 2011 collections reports for the affected transactions continue to reflect these instructions for reimbursements and the recent reconciliation process recognized these reimbursements due to FOVISSSTE.

FOVISSSTE'S SERVICER ADVANCES

Moody's also notes that ACFIN's restated collections reports reflect a revised calculation for servicer advances. This calculation is now clearly explained in the transactions' documents. ACFIN now instructs FOVISSSTE to advance delinquent payments only for borrowers that it confirms are actively employed in the public sector using the SAR system (Sistema de Ahorro para el Retiro) (payments are often late due to operational delays related to the employer's role in remitting to FOVISSSTE its employees' automatic payroll deducted amounts together with a loan-by-loan reconciliation detailing how to apply these amounts across each of its employees with FOVISSSTE mortgages). ACFIN's previous calculation (which FOVISSSTE was not following) instructed FOVISSSTE to advance for all delinquent mortgage payments (even when the borrower became unemployed or when the borrower changed employment from the public sector to private sector).

Moody's believes that FOVISSSTE's advances strengthen the transactions' cash flows and mitigate any operational delays in receiving the payroll deducted mortgage payments and loan reconciliation information from employers. As of April 2012, investors have approved amendments to all TFOVIS transaction documents (with the exception of a TFOVIS deal issued in 2009, which the Common Representative expects will be amended soon) to directly address the concept of 'servicer advances'; now it is very clear how FOVISSSTE and ACFIN should calculate and account for such advances. Further, ACFIN has revised the transactions' historical collection reports to reflect the historical amounts that FOVISSSTE should have advanced according to this revised calculation. Moody's notes that FOVISSSTE has the option, but not the contractual obligation, to remit such advances to the trusts. According to FOVISSSTE, however, the Comisión Nacional Bancaria y de Valores has been requiring it to make these advances in 2012.

For further details on reporting inconsistencies that Moody's had identified when placing the transactions on review for downgrade, please refer to Moody's special comment titled "Moody's to review impact of reporting inconsistencies in FOVISSSTE Mexican RMBS", November 22, 2011.

In issuing and monitoring these ratings, Moody's de Mexico S.A. de C.V. considered the existence and extent of arrangements and mechanism, if any, to align the incentives of the originator, servicer and guarantor of the securities with those of its potential acquirers.

Credit ratings incorporate Moody's macroeconomic outlook and its implications on key variables that may include but not be limited to interest rates, inflation, economic growth, unemployment, performance of counterparties, credit availability, sector level changes in competitive conditions, supply/demand and margins, and issuer specific changes in capital structure, competitive positioning, governance, risk profile, and liquidity. Unexpected changes in such variables may lead to changes in the credit rating level, potentially by several notches. Further information on the sensitivity of the rating to specific assumptions is included in this disclosure.

Given that today's rating action is monitoring-related, a review of origination practices did not apply. Moody's considered the servicer's practices and considers them adequate.

Moody's notes that all the transactions have low levels of 90+ day delinquencies including extensions ('prórrogas') -- less than 5% of the current pool balances -- and strong credit enhancement, with overcollateralization levels of at least 31%.

With respect to the sensitivity of the ratings, if Moody's were to instead assume the following lifetime cumulative gross defaults as a percent of the current pool balance, instead of the value assumed currently in parentheses, the certificates would experience a one-notch downgrade or upgrade (in the global scale) as follows:

-- TFOVIS 09U Class A: 49%, (instead of 5%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 09-2U Class A: 53%, (instead of 6%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 09-3U Class A: 40%, (instead of 9%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 10U Class A: 38%, (instead of 8%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 10-2U Class A: 33%, (instead of 7%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 10-3U Class A: 34%, (instead of 9%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 10-4U Class A: 33%, (instead of 12%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 11-U Class A: 30%, (instead of 10%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 11-2U Class A: 32%, (instead of 10%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 11-3U Class A: 34%, (instead of 17%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIE 11U Class A: 49%, (instead of 6%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

-- TFOVIS 12U Class A: 36%, (instead of 9%), downgrade to Aa2.mx (sf) / Baa2 (sf) from Aaa.mx (sf) / Baa1 (sf)

The principal methodology used in these ratings was "Moody's Approach to Monitoring Residential Mortgage-Backed Securitizations in Mexico", published in August 2009. Please see the Credit Policy page on www.moodys.com.mx for a copy of this methodology.

The date of the last Credit Rating Action on these certificates was:

- TFOVIS 09U Class A, November 22, 2011

- TFOVIS 09-2U Class A, November 22, 2011

- TFOVIS 09-3U Class A, November 22, 2011

- TFOVIS 10U Class A, November 22, 2011

- TFOVIS 10-2U Class A, November 22, 2011

- TFOVIS 10-3U Class A, November 22, 2011

- TFOVIS 10-4U Class A, November 22, 2011

- TFOVIS 11-U Class A, November 22, 2011

- TFOVIS 11-2U Class A, November 22, 2011

- TFOVIS 11-3U Class A, December 14, 2011

- TFOVIE 11U Class A, April 11, 2012

- TFOVIS 12U Class A, March 23, 2012

Data considered for this rating action is dated as of 5 September 2012.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in March 2011 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.mx

The rating has been disclosed to the rated entity prior to public dissemination.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings and public information.

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moody.com.mx

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes maintaining these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

In issuing this credit opinion, Moody's de Mexico S.A. de C.V. did not rely on ratings issued by any other credit rating agency over this issuer/security or any underlying securities.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Karen Ramallo
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Maria Ines Muller
Senior Vice President
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
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Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's confirms Aaa.mx (sf) ratings of FOVISSSTE's TFOVIS Mexican RMBS
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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