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Rating Action:

Moody's downgrades Mexican RMBS CREYCB 06U to Baa2.mx(sf)

31 Jan 2012

Mexico, January 31, 2012 -- Moody's de México S.A. de C.V. has downgraded its ratings on CREYCB 06U certificates to B1(sf) (Global Scale, Local Currency) from Ba1(sf) and to Baa2.mx(sf) (National Scale Rating) from A1.mx(sf). The ratings on CREYCB 06-2U (Class B certificates) of Ca(sf) (Global Scale, Local Currency) and Ca.mx(sf) (National Scale) are not affected.

The downgrade to CREYCB 06U ratings is due to the increased pressures on timely payment of interest to senior certificates holders. This is a result of the consistent deterioration of the mortgage pool reflected by rising delinquencies and of higher operational expenses, related mostly to collection costs. The downgrade also reflects the slow pace of foreclosures and REO sales relative to the pool's high delinquency.

Originator: Hipotecaria Crédito y Casa S.A. de C.V., SOFOL

Issuer: Banco Invex S.A., Institución de Banca Múltiple, solely as trustee

Primary Servicer: ABC Capital, S.A., Institución de Banca Múltiple

-- Class A certificates CREYCB 06U ratings downgraded to B1(sf) (Global Scale, Local Currency) from Ba1(sf) and to Baa2.mx(sf) (National Scale Rating) from A1.mx(sf)

RATINGS RATIONALE

Pool performance deteriorated steadily last year. Past due loans (+90 days) and Real Estate Owned (REO) assets now account for 29.4% of the original pool balance; up from 25.4% the previous year. Geographical concentration also increased, with the states Baja California and Jalisco accounting for 33.9% of the outstanding balance of current loans, but 47.5% of the outstanding balance of total delinquent loans. This indicates that specific factors in those states may be causing rapid migration in non-performing loans from early to late delinquencies and reducing cash flows collections to the trust. At the same time, servicing fees are higher than historical levels and the trustee is making monthly reimbursements to the servicer for costs related to REO management.

The ongoing deterioration in pool performance, coupled with the increase in trust expenses, resulted in insufficient interest collections in December 2011 for interest payments on the CREYCB 06U and CREYCB 06-2U certificates. Under the transaction documents, the trustee makes the payments on the certificates according to a dual waterfall, using the interest collections (net of fees and expenses) to pay interest on the certificates, and the principal collections to pay down the principal. The trustee has had to use funds in a cash reserve, which contains one month's of interest payments for the Class A and B certificates twice during the last three months to cover interest shortfalls. As of December 2011, the reserve contained an amount equivalent to approximately 75% of the monthly interest payments for both certificates.

The interest coverage ratio (ICR) for the CREYCB 06U debt certificates, calculated by dividing interest collections (net of fees and expenses) by the interest on the senior certificates, has been declining to between 0.98 times and 1.30 times in the last twelve months. Moody's considers this level to be somewhat low and volatile in comparison to other Mexican RMBS.

If cashflows from interest collections continue to decline or collection costs remain higher than historical levels, the net interest collections available to make interest payments will remain insufficient, resulting in the continued use of the reserve funds and the potential failure to make full interest payments on the certificates. The primary servicer's efforts to improve collections and recoveries on early and late delinquent loans will be key to restoring collections to levels sufficient to make the payments.

As of March 2011 the servicer had obtained all the necessary authorizations to initiate repossession procedures and complete REO sales. This should result in a higher number of REOs in the future, which should translate into higher collections. However, according to the transaction documents cashflows from REO sales can be used for principal payments only. In addition, the foreclosure and sale process can increase operational expenses (including servicing fees), which would further reduce interest collections available to pay interest on the certificates. Moody's may have to again downgrade the CREYCB 06U ratings if the ICR continues to decline or the pool performance metrics deteriorate further.

Credit protection for CREYCB 06U is adequate for the B1(sf) / Baa2.mx(sf) ratings. Moody's projected net loss for this transaction is 27.4% of the outstanding balance of the loan pool, assuming a severity of loss of 50.0%. This compares to a projected lifetime credit enhancement, including overcollateralization, remaining excess spread and cash reserves, equivalent to 30.4% of the outstanding balance. Moody's notes that the ratings of the certificates are highly sensitive to the amounts to be recovered from REO sales.

The uncertainty surrounding recoveries is considerable, given the limited number of REO sales completed to date. In monitoring this transaction, Moody's assumes that recoveries will be equivalent to 50% of the current loan amount, which already incorporates the fact that the pool benefits from SHF's mortgage insurance will be equivalent to around 24.9% of the current pool balance. In addition, the servicing agreement will expire in 2013 and it will have to be extended or a new servicer will have to be found, which compounds the uncertainty regarding the operational aspects of the transaction.

When rating mortgage backed securitizations in Mexico, Moody's prepares a loan-by-loan cash flow analysis that takes into account 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 any particular characteristics of the transaction such as credit enhancement levels, reserves, and any type of guarantee benefiting the Note 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 stressing the mortgage cash flows in a range of default scenarios and timing defaults along a default curve. The assumed severity of loss on defaulted loans takes into account 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 liquidation. For each of the cumulative gross default scenarios, Moody's allocates the available cash flows according to the priority of payments stipulated 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 notes. Moody's also calculates a weighted average life for the notes, which together with its weighted average loss and idealized loss tables, it uses to assign a rating to the notes.

The methodologies used in this rating 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 for a copy of this methodology.

Other methodologies and factors that may have been considered can also be found on Moody's website.

In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com.

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 to 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 Implementation Guidance published in March 2011 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

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.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

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

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating 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.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com 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 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 for further information.

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

Rene Ibarra
Vice President - Senior Analyst
Structured Finance Group
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
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Maria 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
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's downgrades Mexican RMBS CREYCB 06U to Baa2.mx(sf)
No Related Data.
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