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