Cagamas MBS Bhd (CMBS 2007-2) - 2013

MARC affirms its AAA rating on 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 RM1,520.0 million after the latest serial redemption of RM375.0 million on August 22, 2012. The affirmed rating on the residential mortgage-backed bonds continues to be supported by the strong credit enhancement of 142.7% based on outstanding principal of non-defaulted mortgages of RM1,871.2 million and collection account balance of RM298.2 million. The performance of the collateral pool of seasoned mortgages (Portfolio 2007-2) continues to be within expectations and management of collateral servicing and transaction administration remains satisfactory.
                                           
Cagamas MBS, a wholly-owned subsidiary of Cagamas Holdings Berhad (Cagamas Holdings), is a special purpose vehicle incorporated solely for the issuance of mortgage-backed securities via the securitisation of eligible government staff housing loans (GSHL) under Islamic and conventional principles. Portfolio 2007-2 consists mainly of mortgage loans granted to eligible civil servants and government pensioners and serviced through monthly salary/pension deductions by the servicer of the collateral pool, Bahagian Pinjaman Perumahan (BPP).

Based on the servicer’s quarterly report for CMBS 2007-2 dated February 22, 2013, the outstanding principal of the collateral pool declined to RM1,884.8 million from RM2,093.9 million on the previous reporting date of February 22, 2012. The collateral pool represents 55,158 mortgages with an average size of RM34,171, weighted term to maturity of 11.9 years and weighted average seasoning of 12.5 years. The cumulative default rate continued to be stable at 0.45% of the initial pool balance after 22 quarters of performance compared to 0.44% on the previous reporting date, and is significantly lower than MARC’s assumed rate of 2.07%. GSHL defaults (defined as accounts in arrears for more than nine months) experienced by the pool have been mainly attributed to non-credit issues such as lags and delays in deductions due to changes of eligibility status of borrowers and insurance claims processing for deceased borrowers. Total delinquent mortgages (defined as one month or more but less than or equal to nine months in arrears) increased by 4.52% quarter-on-quarter; this represented 25.47% of the initial pool balance as of the reporting date. The cumulative prepayments on Portfolio 2007-2 rose to 8.47% of the initial pool balance from 6.82% since MARC’s last review and this translates to an average quarterly prepayment rate of 0.39% which remains well within MARC’s assumed stressed scenarios.

Nevertheless, high prepayment risks are moderated by the transaction’s structure which allows for early redemption of back-ended tranches and thus reduces risks relating to negative carry and asset-liability mismatches. The next RM380.0 million redemption of CMBS 2007-2 on August 22, 2014 should be sufficiently covered by the current collection account balance and projected receivables over the next 12 months.

The stable outlook is premised on the rating agency’s expectation that the rating of the bonds will remain consistent with available credit enhancement. MARC expects collateral performance to remain stable, aided by the significant seasoning of the mortgage loans and consistent servicing trends displayed by the underlying collateral pool.

Strengths