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Rating Action:

Moody's places three Mexican construction loan securitizations on review for possible downgrade

 The document has been translated in other languages

24 Aug 2009

Mexico City, August 24, 2009 -- Moody's de México ("Moody's") has placed the ratings of three construction loan securitizations on review for possible downgrade following the publication of Moody's updated methodology for rating Mexican construction loan securitizations.

Several challenging trends have emerged within the Mexican housing construction sector over the past year, including longer construction and sales cycles, weakening demand in certain markets such as the higher-end and tourist housing sectors, and reduced private sector mortgage financing impacting the pace of home sales. The risks are more severe for transactions that are still in the revolving stage and that have concentrations of housing developments targeting the higher-end and tourist sectors. These challenging trends increase extension risk, or the risk that some construction loans may not fully amortize by the transaction's final maturity date due to the longer construction and sales cycles, which increases the risk of losses to investors. The updates to the rating approach account for these changes and also places increased emphasis on certain structural features that Moody's believes strengthen transaction governance given the revolving nature of the securitized portfolios.

The rating actions are as follows:

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

-- HSCCB08 Series A Certificates, ratings of Baa1 (Global Scale, Local Currency) and Aaa.mx (Mexican National Scale) placed on review for possible downgrade.

Originator and Servicer: Crédito Inmobiliario S.A. de C.V.

-- CICB08 Series A Certificates, ratings of Baa1 (Global Scale, Local Currency) and Aaa.mx (Mexican National Scale) placed on review for possible downgrade.

-- CICB06 Series A Certificates, underlying ("shadow") rating of Baa1 (Global Scale, Local Currency) placed on review for possible downgrade.

With today's rating action, all of Moody's-rated Mexican construction loan securitizations rated higher than C.mx are on review for possible downgrade. Two other transactions that would have been affected by today's rating action were recently placed on review for possible downgrade due to performance concerns (Su Casita's HSCCB06 and Hipotecaria Crédito y Casa's CREYCB08 senior certificates).

During the review period, Moody's will evaluate the impact, if any, of the revised rating methodology published today on the ratings of all construction loan securitizations rated by Moody's that are currently on review for possible downgrade.

The principal methodology used in this rating action is "Moody's Approach to Rating Low-Income Residential Construction Loan Securitizations in Mexico" (August 24, 2009), which can be found at www.moodys.com.mx and www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered can also be found in the Credit Policy & Methodologies directory.

OVERVIEW OF THE REVISION TO THE RATING METHODOLOGY

The revision to the rating approach is based on several challenging trends in the Mexican residential housing construction sector, including a general slowdown in project construction and sales cycles, lower demand for housing targeting higher-income buyers and tourists, lower availability of private sector mortgage financing, and increased liquidity pressures for Sofoms/Sofols, all of which introduce greater risk and performance volatility for construction loan securitizations. Faced with the greatest economic decline since the last major downturn in the mid-1990's, more Mexicans are postponing plans to purchase new homes, thereby affecting the rhythm of sales of newly constructed units, even for low-income housing despite the housing deficit in this sector.

Under the new rating approach, and absent robust structural protections, Moody's considers the rating of construction loan securitizations to be highly linked to the rating of the originator of the assets. This is due to the revolving nature of the transactions and the intensive servicing efforts associated with construction loans. In addition, Moody's observes that some originators have supported the performance of certain securitizations on an on-going basis by repurchasing a considerable number of construction loans that were on the verge of being categorized as defaulted. Had these loans never been repurchased from the trust, the reported level of defaulted loans would have been significantly higher than the currently reported level of defaults.

As a result of such a strong connection between the originator and asset performance, absent strong structural protections, Moody's believes it is not possible to achieve a securitization rating that is multiple notches above the company's corporate rating. Depending on our evaluation of the key structural features and credit enhancement, and assuming that such features adequately delink the originator risk from the securitization, Moody's may assign to the transaction a global scale rating of up to Baa1 (i.e. equivalent to a Aaa.mx Mexican national scale rating).

The key structural features that would support a global scale investment-grade rating of up to Baa1 include the presence of a master servicer, back-up servicer, third-party collateral due diligence, appraisal review process, committed and highly-rated take-out providers, robust eligibility criteria, strong mitigants to extension risk, and well structured early amortization event triggers. Some of these key features, such as the presence of a master servicer and an independent third-party collateral due diligence process, would strengthen transaction governance. Others, such as well structured early amortization event triggers and strong mitigants to extension risk, address the risk that some construction loans may not fully amortize by the transaction's final maturity date due to today's longer construction and sales cycles, which could increase the risk of losses to investors.

POTENTIAL RATING IMPLICATIONS

Outstanding securitizations rated by Moody's do not possess several of the structural features mentioned above, which Moody's considers key to its rating approach. For example, some of these transactions lack a master servicer, a periodic and robust collateral audit and appraisal review process conducted by an independent third-party, and strong back-up servicer arrangements. In addition, some transactions do not possess strong mitigants to extension risk.

As a result, it is probable that the majority of outstanding construction loan securitizations currently rated by Moody's may experience downgrades if Moody's concludes that the structural features do not address some of the identified risks related to longer construction and sales cycles and do not adequately delink the originator's risk from the securitization. Any such downgrades will likely result in ratings for the securitization that are more aligned with the originator's corporate rating. The extent of the downgrades will likely be lower for transactions that are no longer revolving, benefit from high levels of credit enhancement and possess strong mitigants against extension risk.

RATING ACTION

The complete rating action is as follows:

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.

-- HSCCB08 Series A Certificates, ratings of Baa1 (Global Scale, Local Currency) and Aaa.mx (Mexican National Scale) placed on review for possible downgrade. The last rating action occurred on April 3, 2008, when the ratings were originally assigned.

Originator and Servicer: Crédito Inmobiliario S.A. de C.V.

Issuer: HSBC Mexico S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, División Fiduciaria, acting solely as trustee.

-- CICB08 Series A Certificates, ratings of Baa1 (Global Scale, Local Currency) and Aaa.mx (Mexican National Scale) placed on review for possible downgrade. The last rating action occurred on May 20, 2008, when the ratings were originally assigned.

-- CICB06 Series A Certificates, underlying ("shadow") rating of Baa1 (Global Scale, Local Currency) placed on review for possible downgrade. The last rating action occurred on December 21, 2006, when the rating was originally assigned.

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

New York
Karen Ramallo
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's places three Mexican construction loan securitizations on review for possible downgrade
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