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Rating Action:

Moody's takes rating actions on two Su Casita Construction Loan Securitizations in Mexico

 The document has been translated in other languages

05 Jan 2010

Mexico City, January 05, 2010 -- Moody's de México (Moody's) has taken rating actions on two construction loan securitizations issued by Hipotecaria Su Casita, S.A. de C.V. Sociedad Financiera de Objeto Múltiple E.N.R. (Su Casita). Moody's has downgraded the senior certificates of Su Casita's HSCCB 08 transaction to B1 (Global Scale, Local Currency) and Baa3.mx (Mexican National Scale) from Baa1 (Global Scale, Local Currency) and Aaa.mx (Mexican National Scale). Moody's has also downgraded the senior certificates of Su Casita's HSCCB 06 transaction to B1 (Global Scale, Local Currency) and Baa1.mx (Mexican National Scale) from Baa1 (Global Scale, Local Currency) and Aaa.mx (Mexican National Scale). Moody's notes that the HSCCB 06 transaction is no longer revolving and therefore no new loans can be assigned to the trust. The HSCCB 08 transaction, however, is still revolving and Su Casita can continue to assign new construction loans to the trust.

The last rating action on HSCCB 08 occurred on August 24, 2009 when the certificates were placed on review for possible downgrade as a result of a recently updated methodology for rating low-income construction loan securitizations in Mexico. The last rating action on HSCCB 06 occurred on June 11, 2009 when the certificates were placed on review for possible downgrade due to performance concerns.

Moody's has observed several challenging trends in 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. 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.

In analyzing Su Casita's construction loan securitizations, Moody's incorporated the impact of these difficult trends and the mitigants in place to protect against risks that can potentially have a negative effect on the rated securities. Under the updated rating approach, and absent robust structural protections, Moody's considers the rating of revolving 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.

Additionally, in the case of the static pool (HSCCB 06), Moody's analysis also incorporated cash flow projections in which cash flows expected from home sales were stressed on a loan-by-loan basis depending on the construction loan's completion rate, delinquency status and housing sector to arrive at the expected loss on the static pools.

HSCCB 08 CERTIFICATES

Today's downgrade of the senior certificates HSCCB 08 to B1 (Global Scale, Local Currency) and Baa3.mx (Mexican National Scale) is primarily based on the heightened extension risk observed in this revolving transaction, the high concentration of loans outside the low-income housing sector, the significant delays in construction across certain projects, and the continuous slow pace of homes sales and pool amortization.

Further, the HSCCB 08 transaction lacks several of the key structural features highlighted in Moody's updated methodology that serve to strengthen transaction governance and to delink the originator risk from the securitization. More specifically, this revolving transaction lacks a master servicer, a strong back-up servicing arrangement, a third-party collateral due diligence and appraisal review process, adequate mitigants to extension risk considering the current environment, and early amortization event triggers that measure the health of principal collections and home sales.

Moody's notes that the transaction's legal maturity is March 2014, and that the revolving period ends just 18 months prior to the final maturity date, at which point the certificates begin to amortize. Given the observed delays in project completion and sales times, it is likely that many loans will require multiple extensions to their original maturity dates. This increases the risk that certain loans may not fully amortize by the transaction's final maturity date. As of November 2009, the senior certificates' had credit enhancement of 21% in the form of overcollateralization and cash holdings to protect against extension and default risk.

As of November 2009, a considerable number of construction loans (representing approximately 27% of the outstanding pool balance) have had less than a 15% change in their loan balances during the past 12 months. The relatively small changes in these loan balances signal that over the past year, certain loans have experienced either a slow pace of disbursements due to construction delays and/or a relatively low level of home sales proceeds applied to amortize the loan balance. As of the same date, the pool did not contain defaulted loans (defined as 30 days past due in principal or 90 or more days past due in interest payments). However, low levels of defaults are expected given the transaction's low seasoning and given that most loans have not yet reached their original maturity dates and therefore cannot default with respect to principal. Su Casita has communicated to Moody's that the company has not repurchased any collateral (either delinquent or otherwise) from this trust and as a result, the performance statistics to date are not distorted by loan repurchases.

As of November 2009, the average construction completion rate for the underlying housing development projects was approximately 70% across 44 projects, weighted by their outstanding loan amounts. The pool was highly concentrated in the middle-to-higher income segment with an average unit (home) value of approximately MXP$977,000. This may contribute to a slower pace of home sales as compared to the low-income housing sector which benefits from a housing shortage and more readily available mortgage financing from quasi-governmental entities. Further, approximately 34% of the pool balance consists of vertical construction housing, which is riskier than horizontal construction since construction must be nearly 100% completed before sales can materialize. Principal collections have been rather low in recent months, averaging approximately 4% as a percentage of the pool balance over the last six months.

HSCCB 06 CERTIFICATES

Today's downgrade of the senior certificates HSCCB 06 to B1 (Global Scale, Local Currency) and Baa1.mx (Mexican National Scale) is primarily based on the weak performance of the underlying loans. More specifically, the transaction has a high level of defaulted loans with respect to interest and/or principal, a slow pace of home sales, significant construction delays across numerous projects (especially among some of the largest loans), and a high concentration of housing in riskier higher-income and tourist properties. Further, the transaction lacks several of the key structural features highlighted in Moody's updated methodology that serve to strengthen transaction governance, such as periodic audits of the collateral and third-party oversight. Moody's believes that extension risk is mitigated to some extent given the deal's final maturity in September 2016 and by the fact that the transaction is no longer revolving and no new loans can be purchased by the trust.

As mentioned above, Moody's notes that this transaction is no longer revolving due to the breach of a trigger relating to the rating of the guarantor, Ambac Assurance Corporation's (Ambac). Moody's rates Ambac's insurance financial strength Caa2 on the global scale. In addition, Moody's notes that Ambac called a partial amortization event on December 29, 2009 as a result of a minimum overcollateralization trigger breach.

As of November 2009, a considerable number of construction loans (representing approximately 47% of the outstanding pool balance) have had less than a 15% change in their loan balances during the past 12 months. As of the same date, approximately 13% of the pool was defaulted with respect to interest (defined as 90 or more days past due with respect to interest). An additional 8% was defaulted with respect to principal only, signaling that these developers have not yet paid the outstanding loan balance after the permitted extensions of up to one year beyond the original maturity date. As of November 2009, the senior certificates' had credit enhancement of 23% in the form of overcollateralization and cash holdings to protect against extension and default risk.

As of November 2009, the average construction completion rate for the underlying housing development projects was approximately 82% across 95 projects, weighted by their outstanding loan amounts. The pool is highly concentrated in the middle-to-higher income sectors with a high average unit (home) value of approximately MXP$1,000,000. In addition, the pool is highly concentrated in the top two projects (representing a combined 21% of the pool balance), which also have high average home prices of MXP$5.6 million and MXP$7.0 million. This is contributing to the slower pace of home sales as compared to low-income housing. Further, approximately 40% of the pool balance consists of vertical construction housing, which is riskier than horizontal construction. Principal collections have been rather low in recent months, averaging approximately 2.5% as a percentage of the pool balance over the last six months.

RATING METHODOLOGY

The principal methodology used in these rating actions 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 Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered can also be found in the Rating Methodologies sub-directory 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/SFQuickCheck.

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.

-- HSCCB 08 Series A Certificates: downgraded to B1 (Global Scale, Local Currency) and Baa3.mx (Mexican National Scale) from Baa1 (Global Scale, Local Currency) and Aaa.mx (Mexican National Scale). The last rating action occurred on August 24, 2009 when the ratings were placed on review for possible downgrade.

-- HSCCB 06 Series A Certificates: downgraded to B1 (Global Scale, Local Currency) and Baa1.mx (Mexican National Scale) from Baa1 (Global Scale, Local Currency) and Aaa.mx (Mexican National Scale). The last rating action occurred on June 11, 2009 when the ratings were placed on review for possible downgrade.

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 takes rating actions on two Su Casita Construction Loan Securitizations in Mexico
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