Cagamas MBS Bhd (CMBS 2005-2) - 2012

MARC has affirmed its AAA rating on Cagamas MBS Berhad’s (Cagamas MBS) mortgage-backed fixed rate serial bonds of RM2,060.0 million (CMBS 2005-2) with a stable outlook. The rating action affects the outstanding bonds of RM1,585.0 million. The affirmed rating on the residential mortgage-backed bonds reflect strong credit enhancement levels for the outstanding bonds based on the transaction’s collection account balance of RM481.4 million and the collateral pool balance of performing mortgages of RM1,988.1 million. In addition, the collateral pool containing seasoned mortgages of high credit quality has demonstrated strong performance thus far. 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 Islamic home financing and conventional housing loans of public sector employees originated by the Government of Malaysia (GOM). The collateral backing this transaction is Portfolio 2005-2, a pool of eligible government staff housing loans (GSHLs) 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 2005-2.

Based on Cagamas’ quarterly servicer report for CMBS 2005-2 dated March 12, 2012 (the reporting date), the mortgage pool consisted of 33,403 fixed-rate mortgages with an outstanding pool balance of RM2,007.0 million, each having an average size of RM60,084.78 and a weighted average maturity of 14.5 years. Since MARC’s last review in May 2011, the transaction’s credit enhancement level had increased to 155.81% owing to the collateral pool’s strong performance. Portfolio 2005-2 has performed above expectations, reflected by its low cumulative default rate of 0.65% against MARC’s assumed cumulative default rate of 2.06%. A majority of the defaults as of the reporting date are the result of data reconciliation lags and delays in salary and/or pension deductions due to changes in the employment statuses of borrowers. Meanwhile, the collateral pool’s cumulative prepayment rate of 8.64% remained within MARC’s range of assumed stressed prepayment rates.
 
MARC’s cash flow analysis has shown that the bonds can still be adequately serviced under high-stress default scenarios for AAA-rated transactions. Funds in the Collection Account are sufficient to cover the forthcoming scheduled redemption of RM270.0 million of Tranche 3 bonds on December 12, 2012. Cagamas MBS may exercise the option to partially redeem the final tranche of CMBS 2005-2 on the next scheduled redemption date on the condition that RM90 million remains in the Collection Account post redemption. The cash flow analysis also considers increases of 7% to 13% in civil servant salaries under the government’s improved Malaysian Remuneration System, effective from April 2012 onwards. MARC views the salary increases to be a positive factor for the collateral pool’s performance going forward and expects some increases in prepayments.

MARC’s stable outlook for CMBS 2005-2 is premised on both the expectation that the collateral pool will continue to show stable performance and the transaction’s high overcollateralisation ratio, which allows the bonds to withstand a large increase in mortgage defaults and loss rates. MARC considers the risk of shortfalls arising from higher-than-expected prepayments to be well mitigated by CMBS 2005-2’s sizeable accumulated liquidity reserves.

Strengths