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Announcement - Servicer:

Moody's downgrades the rating of Hipotecaria Su Casita as a primary servicer of residential mortgage loans; the rating remains on review for downgrade

 The document has been translated in other languages

26 Oct 2010

Residential mortgage primary servicer rating action in Mexico

Mexico, October 26, 2010 -- Moody's de México S.A. de C.V. (Moody's) has downgraded to SQ4- (SQ4 minus) from SQ4 the rating of Hipotecaria Su Casita, S.A. de C.V. SOFOM., E.N.R. (Su Casita) as a primary servicer of residential mortgage loans in Mexico. The rating remains on review for possible downgrade.

This rating action follows Moody's recent downgrade of Su Casita's issuer ratings, corporate family ratings and senior unsecured ratings, as detailed below. This action also takes into account the continued high delinquency levels in Su Casita's mortgage portfolio.

Servicing stability

Moody's considers the company's servicing stability as below average. On October 19, 2010 Moody's downgraded Su Casita's global scale local currency issuer rating to C from Ca, the national scale issuer rating to C.mx from Ca.mx, the corporate family rating to C from Ca and the senior notes to C from Ca. Such action followed the announcement on October 14 that Su Casita had missed principal and interest payments on local notes.

According to Moody's, Su Casita's current liquidity position is very weak, and the C ratings reflect the potential for above-average loss severity on Su Casita's senior unsecured debt as the company continues to negotiate a debt restructuring with all its creditors outside of any bankruptcy proceeding. No resolution to the company's current debt payment default and no acceptable refinancing plan in place with its creditors could most likely lead to an imminent acceleration of the much of the company's debt causing much more strain on Su Casita's current very weak liquidity.

The very weak financial and liquidity position of Su Casita could significantly limit the allocation of monetary, human and physical resources to the servicing operations exposing the servicing platform to significant operating problems.

Collections ability

In Moody's opinion the collections ability of Su Casita is below average. Rollover rates analyses to Su Casita's mortgage portfolio show comparatively high rates of loans that migrate to a worse status. Similarly, the past due portfolio measured as a percentage of the total mortgage portfolio continues showing an increasing trend, and it is of 16% as of September 2010.

In addition, during 2010 the number of employees in Su Casita's collection team has decreased while Su Casita has incorporated a similar number of subcontracted personnel. As of September 2010 Su Casita's collections team included 600 full time employees and 162 subcontracted. Moody's is concerned that a high number of subcontracted personnel could increase the turnover rate among the collections staff as well as contribute to further deterioration of Su Casita's mortgage portfolio performance.

Moody´s review of the servicer quality rating will focus on the outcome of Su Casita's current negotiation with unsecured creditors, on Su Casita´s portfolio delinquency levels and on the proper management of collections.

The last rating action on Su Casita's SQ rating occurred on September 15, 2010 when Su Casita's SQ3+ (SQ3 plus) rating as a primary servicer was downgraded to SQ4.

Moody's analyzes and monitors Su Casita using the rating methodology described in "Moody's Approach to Rating Residential Mortgage Servicers" (January 2001) and "Updated Moody's Servicer Quality Rating Scale and Definitions" (May 2005). A detailed description of the methodologies can be found on Moody's website: www.moodys.com. 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/SFQuickCheck.

Moody's SQ ratings represent its view of a servicer's ability to prevent or mitigate asset pool losses across changing markets. The rating scale ranges from SQ1 (strong) to SQ5 (weak) where SQ2 is Above Average, SQ3 is Average and SQ4 is Below Average. Appropriate, a "+" or "-" modifier will be appended to the relevant rating to indicate a servicer's relative servicing quality within a particular category.

Moody's servicer ratings are differentiated in the market place by focusing on performance management. SQ ratings for Mexican residential mortgage servicers incorporate assessments of delinquency transition rates, foreclosure timeline management, loan cure rates, REO management, among others - all critical indicators of a servicer's ability to maximize returns from mortgage portfolios.

Moody's servicer ratings also consider the company's ability to maintain its focus on high quality servicing in an economic downturn. The SQ rating reflects our expectation of the impact that the servicing will have on the on-going credit performance of the portfolio. For this reason, Moody's monitors SQ ratings based on periodic information provided by servicers and conducts a formal re-evaluation of its servicer ratings annually.

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

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

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 downgrades the rating of Hipotecaria Su Casita as a primary servicer of residential mortgage loans; the rating remains on review for downgrade
No Related Data.
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