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Rating Action:

Moody's places ratings of 18 Mexican Sofol RMBS certificates on review for downgrade

22 Feb 2013

Mexico, February 22, 2013 -- Moody's de México (Moody's) has placed the ratings of 18 Mexican Sofol RMBS certificates on review for possible downgrade due to rising concerns about the potential for a higher severity of loss on defaulted loans.

The underlying collateral consists of first-lien, fixed-rate mortgage loans denominated in inflation-indexed Unidades de Inversión (UDIs) units and granted primarily to low-income borrowers in Mexico. The originators include Hipotecaria Su Casita S.A. de C.V., Hipotecaria Crédito y Casa S.A. de C.V., Metrofinanciera SOFOM E.N.R., Patrimonio S.A. de C.V., ING Hipotecaria S. A. de C.V. and Hipotecaria Nacional S.A. de C.V.

The complete rating action is as follows:

-- MXMACCB 04U Class A, Aaa.mx (sf) (Mexican National Scale) and Baa1 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Dec 3, 2004 assigned Aaa.mx (sf) and Baa1 (sf)

-- MXMACCB 05U Class A, Aaa.mx (sf) (Mexican National Scale) and Baa1 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Aug 8, 2005 assigned Aaa.mx (sf) and Baa1 (sf)

-- MXMACCB 06U Class A, A2.mx (sf) (Mexican National Scale) and Ba2 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Jan 12, 2011 downgraded to A2.mx (sf) and Ba2 (sf)

-- MFCB 05U Class A, A2.mx (sf) (Mexican National Scale) and Ba2 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Feb 2, 2011 confirmed at A2.mx (sf) and Ba2 (sf)

-- METROCB 06U Class A, A2.mx (sf) (Mexican National Scale) and Ba2 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Feb 2, 2011 confirmed at A2.mx (sf) and Ba2 (sf)

-- MTROCB 07U Class A, Baa3.mx (sf) (Mexican National Scale) and B2 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Feb 24, 2012 confirmed at Baa3.mx (sf) and B2 (sf)

-- MTROCB 08U Class A, Caa1.mx (sf) (Mexican National Scale) and Caa1 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Jul 15, 2011 downgraded to Caa1.mx (sf) and Caa1 (sf)

-- CREYCB 06U Class A, B1.mx (sf) (Mexican National Scale) and B3 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Mar 7, 2012 downgraded to B1.mx (sf) and B3 (sf)

-- CREYCB 06-2U Class B, Ca.mx (sf) (Mexican National Scale) and Ca (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Feb 2, 2011 downgraded to Ca.mx (sf) and Ca (sf)

-- PATRICB 06U Class A, Aa2.mx (sf) (Mexican National Scale) and Baa3 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Apr 16, 2009 downgraded to Aa2.mx (sf) and Baa3 (sf)

-- PATRICB 07U Class A, Aa3.mx (sf) (Mexican National Scale) and Ba1 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Apr 16, 2009 downgraded to Aa3.mx (sf) and Ba1 (sf)

-- HICOACB 06U Class A, Aaa.mx (sf) (Mexican National Scale) and Baa1 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Oct 10, 2006 assigned Aaa.mx (sf) and Baa1 (sf)

-- BRHSCCB 05U Class A, Aaa.mx (sf) (Mexican National Scale) and Baa1 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Oct 18, 2011 confirmed at Aaa.mx (sf) and Baa1 (sf)

-- BRHSCCB 06U Class A, Aa2.mx (sf) (Mexican National Scale) and Baa3 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Oct 18, 2011 downgraded to Aa2.mx (sf) and Baa3 (sf)

-- BRHSCCB 06-5U Class A, Aaa.mx (sf) (Mexican National Scale) and Baa1 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Oct 18, 2011 confirmed at Aaa.mx (sf) and Baa1 (sf)

-- BRHCCB 07-2U Class A-2, Caa2.mx (sf) (Mexican National Scale) and Caa2 (sf) (Global Scale, Local Currency) underlying ratings (reflecting the certificates' intrinsic credit quality absent the financial guarantee provided by MBIA México, rated Caa2 for insurance financial strength), placed on review for possible downgrade; previously on Nov 21, 2012 underlying rating assigned Caa2.mx (sf) (National Scale Rating) and previously on Jan 11, 2011 underlying rating downgraded to Caa2 (sf) (Global Scale, Local Currency)

-- BRHCCB08-2U Class A-2, Caa1.mx (sf) (Mexican National Scale) and Caa1 (sf) (Global Scale, Local Currency) placed on review for possible downgrade; previously on Aug 24, 2012 Downgraded to Caa1.mx (sf) and downgraded to Caa1 (sf)

-- Hipotecaria Su Casita - Cross-border, Class A Insured Residential Mortgage Backed Floating Rate Notes Class A, B3 (sf) (Global Scale, Foreign Currency) placed on review for possible downgrade; previously on Jan 11, 2011 downgraded to B3 (sf)

The certificates' current rating is consistent with Moody's practice of rating insured securities at the higher of (1) the guarantor's insurance financial strength rating (MBIA Insurance Corp., rated Caa2) and (2) the underlying ratings, which reflect the intrinsic credit quality of the certificates in the absence of the guarantee, and based on Moody's modified approach to rating structured finance securities wrapped by financial guarantors.

RATINGS RATIONALE

Today's rating action is based mainly on Moody's concerns about the potential for a higher severity of loss on defaulted loans in the affected Sofol-sponsored Mexican RMBS in the low-income housing sector. Across the affected transactions, Moody's currently assumes an average severity of loss of 47% for the thirteen transactions benefiting from mortgage insurance policies and 61% for those without such policies.

Moody's believes that the severity of loss assumption may have to be adjusted upwards due to :

i. The limited real estate owned (REO) activity in the Sofol RMBS market, despite the high level of loan defaults;

ii. The growing recovery lag;

iii. Available data from servicers for the affected transactions and market data signaling negative trends for the severity of loss; and

iv. The relatively low level of reported mortgage insurance proceeds to date across transactions benefiting from such policies.

Limited REO Activity in Sofol RMBS Market, Despite High Delinquencies

Despite the large pipeline of 90+ day delinquencies that has built up since 2008 across the affected transactions, the number of properties in REO status is generally low. These transactions contain a large number of defaulted loans but a relatively small amount of REO inventory; the difference signals that a large backlog of defaulted loans have yet to go through or complete the foreclosure process.

Across the affected deals, defaulted loans (including 90+ day delinquencies and loans in REO) averaged 40% of the current pool balance, while servicers reported only 7% of the current pool balance in REO status. Further, according to the data that servicers report, cumulative REO sales proceeds to date equal approximately 1% of the original pool balance on average, indicating that servicers have not had much success in repossessing and liquidating properties associated with defaulted loans, leading to a very slow pace of recoveries.

Growing Recovery Lag

The fact that REO recoveries have yet to accelerate four years after loan defaults started to pick up signals that the lag between the initial loan default and final liquidation has likely lengthened beyond the three to four year timeline that Moody's previously assumed in its ratings. In general, the longer the recovery lag, the higher the severity of loss. This is due to higher accrued interest expense and REO maintenance and/or foreclosure costs. Also negatively impacting the severity of loss is the mismatch that arises due to the fact that the trust liabilities (denominated in UDIs) continue to be indexed to inflation during the recovery lag, but they are partially backed by non-performing assets (defaulted and REO loans) that are no longer generating inflation-indexed cashflows. Lastly, in the case of the Hipotecaria Su Casita and Credito y Casa transactions, servicer transfers have resulted in delays in the substitute servicer obtaining the legal powers necessary to foreclose on defaulted loans, leading to longer recovery lags.

Other Market and Surveillance Data Signal Negative Trends for Severity of Loss

After reviewing general market data as well as monitoring data that certain servicers provided for some of the affected transactions, Moody's is concerned that foreclosure costs may represent 25% or more of a property's appraised value and that REO properties may be selling at an average discount of 30% or more of the original appraised value. Further, it is possible that future REO sales may produce lower recoveries if the REO inventory with the oldest aging has undesirable attributes.

Concerns Related to Mortgage Insurance Policies

Thirteen of the seventeen affected transactions benefit from mortgage insurance policies providing mortgage default protection for individual loans at specified coverage percentages. Mortgage insurance can considerably decrease the severity of loss associated with a defaulted loan. However, servicers generally report a relatively low level of historical mortgage insurance proceeds which could indicate that claims are not being presented adequately or that claims are being rejected.

Focus During the Review Period

During the review period Moody's will request detailed and standardized, loan-by-loan information from servicers of the affected transactions to better assess their historical and expected severity of loss experience as well as the status of any mortgage insurance (MI) policies benefiting the trusts. Moody's will evaluate this information together with other market information and use it to determine the appropriate severity of loss assumption for the affected transactions.

Moody's will also continue discussions with servicers to understand the exact causes for the higher-than-expected and observed recovery lags and to understand any delays posed by the servicing transfer process, including obtaining legal powers necessary to initiate foreclosure process. In addition, Moody's will evaluate the status of mortgage insurance policies and will assess if servicers are processing mortgage insurance claims on a timely basis and within the policies' time limit requirements.

If the severity of loss assumption is adjusted upwards, the ratings of the affected transactions may be downgraded. Because the extent of any potential adjustment is uncertain until the review is concluded, Moody's has calculated how the model-indicated global scale ratings of the affected certificates would change in a worst-case scenario, that is, if the severity of loss assumption equaled 100%:

-- MXMACCB 04U Class A, rating would change to Caa3 (sf) from Baa1 (sf) if the current severity assumption of 46% were to increase to 100%; lifetime projected losses would increase to 49% from 23% of the current pool balance.

-- MXMACCB 05U Class A, rating would change to B3 (sf) from Baa1 (sf) if the current severity assumption of 42% were to increase to 100%; lifetime projected losses would increase to 39% from 17% of the current pool balance.

-- MXMACCB 06U Class A, rating would change to Caa3 (sf) from Ba2 (sf) if the current severity assumption of 45% were to increase to 100%; lifetime projected losses would increase to 50% from 23% of the current pool balance.

-- MFCB 05U Class A, rating would change to Caa2 (sf) from Ba2 (sf) if the current severity assumption of 44% were to increase to 100%; lifetime projected losses would increase to 32% from 14% of the current pool balance.

-- METROCB 06U Class A, rating would change to Caa3 (sf) from Ba2 (sf) if the current severity assumption of 44% were to increase to 100%; lifetime projected losses would increase to 44% from 20% of the current pool balance.

-- MTROCB 07U Class A, rating would change to Ca (sf) from B2 (sf) if the current severity assumption of 47% were to increase to 100%; lifetime projected losses would increase to 53% from 25% of the current pool balance.

-- MTROCB 08U Class A, rating would change to Ca (sf) from Caa1 (sf) if the current severity assumption of 47% were to increase to 100%; lifetime projected losses would increase to 51% from 24% of the current pool balance.

-- CREYCB 06U Class A, rating would change to Caa3 (sf) from B3 (sf) if the current severity assumption of 50% were to increase to 100%; lifetime projected losses would increase to 56% from 28% of the current pool balance.

-- CREYCB 06-2U Class B, rating would change to C (sf) from Ca (sf) if the current severity assumption of 50% were to increase to 100%; lifetime projected losses would increase to 56% from 28% of the current pool balance.

-- PATRICB 06U Class A, rating would change to B2 (sf) from Baa3 (sf) if the current severity assumption of 60% were to increase to 100%; lifetime projected losses would increase to 38% from 23% of the current pool balance.

-- PATRICB 07U Class A, rating would change to Caa2 (sf) from Ba1 (sf) if the current severity assumption of 60% were to increase to 100%; lifetime projected losses would increase to 45% from 28% of the current pool balance.

-- HICOACB 06U Class A, rating would change to B3 (sf) from Baa1 (sf) if the current severity assumption of 51% were to increase to 100%; lifetime projected losses would increase to 30% from 16% of the current pool balance.

-- BRHSCCB 05U Class A, rating would change to Caa3 (sf) from Baa1 (sf) if the current severity assumption of 44% were to increase to 100%; lifetime projected losses would increase to 54% from 24% of the current pool balance.

-- BRHSCCB 06U Class A, rating would change to B3 (sf) from Baa3 (sf) if the current severity assumption of 59% were to increase to 100%; lifetime projected losses would increase to 35% from 22% of the current pool balance.

-- BRHSCCB 06-5U Class A, rating would change to Ba2 (sf) from Baa1 (sf) if the current severity assumption of 54% were to increase to 100%; lifetime projected losses would increase to 31% from 17% of the current pool balance.

-- BRHCCB 07-2U Class A-2, underlying rating would change to C (sf) from Caa2 (sf) if the current severity assumption of 62% were to increase to 100%; lifetime projected losses would increase to 68% from 42% of the current pool balance.

-- BRHCCB08-2U Class A-2, rating would change to C (sf) from Caa1 (sf) if the current severity assumption of 42% were to increase to 100%; lifetime projected losses would increase to 64% from 27% of the current pool balance.

-- Cross-border, Class A Insured Residential Mortgage Backed Floating Rate Notes Class A, underlying rating would change to Ca (sf) from B3 (sf) if the current severity assumption of 63% were to increase to 100%; lifetime projected losses would increase to 57% from 36% of the current pool balance.

The methodologies used in this rating action were "Moody's Approach to Rating Mexican RMBS" published in August 2012 and "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 these methodologies.

Moody's considered the servicers' practices and considers them adequate.

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 October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

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.

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, administrator 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.

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.

In conducting surveillance of this credit, Moody's considered performance data contained in servicer and remittance reports. Moody's obtains servicer reports on this transaction on a periodic basis, at least annually.

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

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

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.moodys.com.mx.

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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

This Rating is subject to upgrade or downgrade based on future changes in the financial condition of the Issuer/Security, and said modifications will be made without Moody's de Mexico S.A. de C.V accepting any liability as a result.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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 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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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 places ratings of 18 Mexican Sofol RMBS certificates on review for downgrade
No Related Data.
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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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