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Rating Action:

Moody's downgrades to B3 (sf) / Ba3.mx (sf) the HSCCB 06 certificates, a construction loan securitization from Hipotecaria Su Casita in Mexico

 The document has been translated in other languages

Global Credit Research - 07 Feb 2011

Mexico, February 07, 2011 -- Moody's de México ("Moody's") has downgraded a Mexican construction loan securitization serviced by Hipotecaria Su Casita (HSCCB 06 Series A certificates) to B3 (sf) from B1 (sf) (Global Scale, Local Currency), and to Ba3.mx (sf) from Baa1.mx (sf) (Mexican National Scale). This rating action concludes the review for possible downgrade that was initiated on September 20, 2010. In addition, Moody's has withdrawn the B1 (sf) underlying rating of the transaction for business reasons, after the Ambac financial guarantee on the senior certificates was canceled.

Originator and Servicer: Hipotecaria Su Casita, S.A. de C.V. Sociedad Financiera de Objeto Múltiple E.N.R.

Issuer: Banco J.P. Morgan S.A., Institución de Banca Múltiple, J.P. Morgan Grupo Financiero, División Fiduciaria, acting solely as trustee.

-- HSCCB 06 Series A Certificates: to B3 (sf) from B1 (sf) (Global Scale, Local Currency), and to Ba3.mx (sf) from Baa1.mx (sf) (Mexican National Scale).

- HSCCB 06 Series A Certificates: B1(sf) underlying rating withdrawn

RATINGS RATIONALE

Today's downgrade of the HSCCB 06 Series A certificates reflects a considerable credit deterioration of the portfolio in recent months, particularly in the percentage of loans that are defaulted with respect to interest, the increase in the number of loans that are in foreclosure proceedings, and the continued low level of monthly collections arising from home sales proceeds.

The rating action also reflects Moody's concerns about Su Casita's stability as servicer as a result of the recent downgrade of the company's issuer ratings. During economic downturns a servicer´s financial strength becomes even more important in connection with the performance of the portfolio under management. There is a risk that a company with a weakened financial strength may have a limited ability to devote sufficient resources to sustain its servicing capabilities in a difficult economic environment. This in turn, may adversely impact loan performance.

Moody's notes that the transaction is currently in early amortization. On January 24, 2011, investors voted to remove Ambac as a financial guarantor. As a result, Moody's has withdrawn the B1 underlying rating for business reasons.

Additionally, in the January 2011 bondholder's meeting investors approved the use of a significant portion of the trust's cash reserves (or MXN$361 million) to amortize the certificates. As a result, as of February 1, 2011, the certificates had an outstanding balance of MXN$886 million, representing 51% of the original bond balance. The transaction still benefits from a MXN$150 million reserve for future disbursements to be used for performing projects that require funds to finalize construction. The legal maturity for the HSCCB 06 senior certificates is September 2016.

The loan portfolio has experienced a sharp deterioration in performance in recent months. As of December 2010, approximately 79% of the pool was defaulted with respect to interest or principal (defined as 90 or more days past due with respect to interest or 30 or more days past due with respect to principal). Moody's notes that as of December 2010 the percentage of the pool defaulted with respect to interest (or 90+ days past due) increased significantly as the largest project (representing 20% of the pool) was reported as 4 months past due with respect to interest. However, as of the prior month, or November 2010, Su Casita had reported that same loan as 0 months past due with respect to interest. According to Su Casita, this loan was negotiating a term extension and this process took over three months. During this time no interest was generated in their systems; however, once the term was extended, the interest accrued and not generated was recognized. In addition, 22 projects representing approximately 52% of the pool balance are in foreclosure process or will start foreclosure proceedings soon.

The average construction completion rate for the underlying housing development projects was approximately 81% across 77 projects, weighted by their outstanding loan amounts, as of December 2010. Additionally, approximately 36% of the pool balance consists of vertical construction housing, which is riskier than horizontal construction since construction has to be nearly 100% finished before sales can materialize. Principal collections have been rather low in recent months, averaging approximately 2.3% as a percentage of the pool balance over the last six months.

The portfolio is exposed to high loan concentrations, which increases the risk of losses if a large loan experiences stress. As of December 2010 the top project represented 20% of the pool, while the top ten projects represented 50% of the pool. The largest loan is a vertical project targeting tourists/second home buyers, with a 77% construction rate, a high average home price of MXP$5.6 million, and in severe delinquency status. Approximately 51% of the pool is concentrated in the residential or residential plus sectors, with average home values of MXP$1.9 million. The residential and residential plus housing sectors are riskier than the low-income housing sector, which benefits from a housing shortage and more readily available mortgage financing from quasi-governmental entities. As of December 2010, the senior certificates' had credit enhancement of 30% in the form of overcollateralization and cash holdings to protect against extension and default risk.

In taking today's rating action, Moody's stressed projected loan collections on a loan by loan basis according to the project status (whether the project is in its sales phase, construction advance greater or lower than 70% , deed in lieu or in foreclosure proceedings), sector type (low income, middle income, residential or residential plus) and delinquency status. Recovery rates ranged from 25% to 95% of the projected home sales on the pool. Moody's applied an overall stress of 51% to projected home sales proceeds. According to Moody's projections of cash flows and future disbursements for certain pool loans, the projected recovery rate on the affected certificates is consistent with a B3 rating. Ratings on the senior certificates may be downgraded if our recovery rate assumptions decrease. The expected recovery rate for a B3 rating (global scale) or a Baa3.mx to a Ba2.mx (national scale) rating ranges from >95% to 97%.

Primary sources of assumption uncertainty are the levels of homes sales in Mexico and for the 77 projects included in the pool and the amount of recoveries in a foreclosure process. Housing demand can be impacted by regional macroeconomic factors such as rises in unemployment, and the availability of home financing, particularly in the middle, residential and residential plus sectors, where mortgage financing is not as readily available as it is in the low-income housing sector. In addition, demand for a particular housing project can be impacted by factors specific to the project such as the price of the units, quality of construction and amenities and location, among others. Finally, there is no information available from Su Casita regarding recoveries from a finalized foreclosure process on a construction project. Moody's will monitor the transaction and any new information regarding sales and foreclosure proceeds.

The principal methodology used in this rating action was "Moody's Approach to Rating Low-Income Residential Construction Loan Securitizations in Mexico", published in August, 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. 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 Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

REGULATORY DISCLOSURES

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

Moody's considers the quality of information available on the issuer satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit 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 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
Victoria Moreno
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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
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No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
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Moody's downgrades to B3 (sf) / Ba3.mx (sf) the HSCCB 06 certificates, a construction loan securitization from Hipotecaria Su Casita in Mexico
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