Cagamas MBS Bhd (2007-2) - 2011

MARC has affirmed the AAA rating of Cagamas MBS Berhad’s (Cagamas MBS) asset-backed fixed rate serial bonds (CMBS 2007-2) of RM2,410.0 million with a stable outlook. The rating action affects the outstanding bonds of approximately RM1,895.0 million. CMBS 2007-2 represents the fifth residential mortgage-backed securitisation issuance by Cagamas MBS. The transaction’s affirmed rating reflects a strong credit enhancement level of 133.6% for the outstanding bonds, supported by a collections account balance of RM231.6 million and the outstanding principal of non-defaulted mortgages of RM2,300.88 million. At the same time, CMBS 2007-2’s underlying collateral pool of seasoned and high credit quality mortgages has continued to perform well since MARC’s last review. The affirmed rating also benefits from satisfactory management of collateral servicing and transaction administration.
 
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 2007-2) on which monthly mortgage instalments are made via direct salary/pension deductions. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2007-2.

Based on the servicer’s quarterly report for CMBS 2007-2 dated February 22, 2011 (the reporting date), Portfolio 2007-2’s outstanding balance registered at RM2,308.20 million, representing 58,950 fixed-rate mortgages with an average size of RM39,155 each, a weighted term to maturity of 13.4 years and a weighted average seasoning factor of 10.8 years. Up to the reporting date, Portfolio 2007-2’s cumulative default rate had registered at 0.2% and was below MARC’s expected cumulative default rate of 2.9%. The majority of the RM7.32 million in defaults (loan amounts in arrears for more than 9 months) under the transaction are the result of data reconciliation lags and delays in salary and/or pension deductions due to changes in the employment status of government staff. At the same time, Portfolio 2007-2’s cumulative prepayment rate of 5.2% also fell within MARC’s assumed range of prepayment scenarios.

MARC’s cash flow analysis supports expectations that sufficient funds will be built up for Tranche 2 worth RM375.0 million on August 22, 2012. Cagamas MBS will be able to exercise the option to partially redeem  the final  tranche  of CMBS 2007-2 on the next scheduled redemption date on the condition that RM90 million remains in the Collection Account post redemption. The cash flow analysis also demonstrated that the bonds are able to withstand ‘AAA’ default and prepayment scenarios for their remaining tenure. Notwithstanding, MARC acknowledges that actual liquidity levels could differ from projections due to differences between observed and simulated early redemption in relation to timing and redemption amount.
 
MARC’s stable outlook for CMBS 2007-2 is premised on the collateral pool’s stable performance and its high collateralisation ratio, which allows the bonds to withstand a large increase in mortgage defaults and loss rates.

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Challenges/Risks