Cagamas MBS Bhd (2004-1) - 2009

MARC has affirmed the AAA rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds of RM1,555.0 million (CMBS 2004-1). The rating carries a stable outlook. CMBS 2004-1 is the first residential mortgage-backed securitisation issuance by Cagamas MBS and comprises four tranches with maturities on the third, fifth, seventh, tenth anniversary from the issuance date of October 20, 2004. To date, Cagamas MBS has launched five residential mortgage-backed securities issuances, amounting to a total of RM10.2 billion.

The affirmed rating reflects the satisfactory performance of the securitised mortgage portfolio to date, particularly its lower-than-expected delinquency and cumulative default rates. As of reporting date July 2009, credit enhancement for the transaction has grown to 43.0% up from 24.5% at close. Credit enhancement is derived from both total outstanding principal (including repurchased mortgages but excluding defaulted mortgages) and cash and permitted investments of RM482.3 million. The affirmed rating also reflects the adequate monitoring capabilities employed in administering the mortgage portfolio by the transaction administrator, Cagamas Berhad (Cagamas). Cagamas MBS, wholly-owned by Cagamas Holdings Berhad (the holding company of Cagamas), is a limited purpose entity whose principal activities are restricted to acquiring GSHLs from the Federal Government of Malaysia (GOM) and issuing asset-backed securities to finance the acquisition.

At transaction close, Cagamas MBS had acquired from the GOM rights, titles, interests and benefits in respect of selected government staff housing loans (GSHLs) amounting to RM1,935.7 million by way of an equitable assignment, providing a principal overcollateralisation of 124.5% at transaction close. All loans in the pool are fixed-rate loans with monthly mortgage instalments made via direct pension deductions. The acquisition was funded by proceeds from the issuance of CMBS 2004-1. The GOM’s Housing Loans Division or Bahagian Pinjaman Perumahan (BPP) is the servicer of Portfolio 2004-1 and will continue to administer the foregoing after the securitisation exercise.

As at November 30, 2008, Portfolio 2004-1 consisted of 46,988 accounts with a total outstanding principal amount of RM878.7 million. Since closing, the collateral has performed well as evidenced by the portfolio’s lower-than-expected cumulative default rate reported at 0.63%. MARC notes that time taken for reconciliation, various reporting issues and amounts pending claims from next-of-kin and insurance reimbursements due to death of borrowers collectively accounted for 61% of total principal deemed defaulted. Another 15% is attributed to the inactivity of pensioners’ banking accounts for three consecutive months and pending status ascertainment by the Pension Division of the Public Service Division or Jabatan Perkhidmatan Awam (JPA). MARC takes comfort that it is highly possible that a significant portion of principal amounts can be reclaimable through further actions.

Since transaction close, a total of RM253.3 million has been prepaid. Portfolio 2004-1 registered cumulative prepayment rate of 13.08%, translating to an average quarterly prepayment rate of 0.69%. MARC takes comfort that a significant 89.4% of the prepayments for the period under review were voluntary. With the full redemption of tranche 1 and 2 in October 2007 and October 2009 respectively, total outstanding obligations of CMBS 2004-1 have been reduced to RM635.0 million. As of reporting date July 20, 2009. Portfolio 2004-1’s cash and permitted investments stood at RM482.3 million.

The portfolio is partially protected against rising reinvestment risk (with falling interest rates) by the structure’s built-in conditional pass-through provision which allows for partial redemption of tranche 4 of the CMBS 2004-1 ahead of their legal maturity.

Strengths

• Satisfactory performance of the mortgage portfolio supporting the transaction as reflected in the portfolio’s low delinquency and default rates;
• High borrower density translates to low nominal exposure per borrower; and
• Monitoring capabilities of transaction administrator, Cagamas Berhad.

Challenges