Cagamas MBS Bhd (2005-2) - 2010

MARC has affirmed the AAA rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds of RM2,060.0 million (CMBS 2005-2) with a stable outlook. CMBS 2005-2 represents the third residential mortgage-backed securitisation issuance by Cagamas MBS. The affirmed rating reflects an increase in the transaction’s credit enhancement levels due to loan payoffs and amortisation in addition to the satisfactory performance of the securitised mortgage portfolio to date with regard to its stable delinquency and low cumulative default rates. Underpinning the stable performance of the pool is its weighted average seasoning of 8.0 years and the high credit quality obligors. The affirmed rating is also supported by the adequate monitoring capabilities of the transaction administrator, Cagamas Berhad (Cagamas).

Cagamas MBS is a limited purpose entity and a wholly-owned subsidiary of Cagamas Holdings Berhad (Cagamas Holdings) whose principal activities are restricted to securitising government staff housing loans (GSHLs), originated under both Islamic and conventional principles, from the Government of Malaysia (GOM), by issuing asset-backed securities. The collateral backing this transaction is a pool of eligible GSHLs (Portfolio 2005-2) on which monthly mortgage installments are made via direct salary/pension deductions. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2005-2.

Based on Cagamas’ quarterly report for Portfolio 2005-2’s performance dated June 14, 2010 (the reporting date), the outstanding mortgage portfolio consisted of 34,917 fixed-rate mortgages with an outstanding pool balance of RM2,270.6 million, excluding RM18.93 million in defaults (loan amounts in arrears for more than 9 months); this compares to the portfolio’s position at issuance, which consisted of 36,992 fixed-rate mortgages worth RM2,989.7 million in total. At the same time, the credit enhancement level for the total outstanding bonds of RM1,835.0 million stood at 147.3%, based on cash and permitted investments of RM431.8 million in CMBS 2005-2’s Collection Account and the principal balance of performing mortgages within the collateral pool.

On the reporting date, the cumulative default rate for the collateral pool registered at 0.65%, much lower than MARC’s assumed cumulative default rate of 4.44% for the same period. The report attributes the majority of the defaults to administrative delays in salary and/or pension deductions for government staff that had become eligible for pension payments or were transferred to another department or state. In addition, the pool’s cumulative prepayment rate registered at 5.50%, which falls within the range of assumed stress scenarios.

Going forward, MARC expects Portfolio 2005-2 to continue to perform well based on its historical performance. In addition, Cagamas MBS is expected to be able to exercise its option to partially redeem the last tranche of CMBS 2005-2 on the next scheduled redemption date. Given the high credit enhancement level available, MARC views that an early partial redemption would have minimal impact on the bonds.

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