Cagamas MBS Bhd (CMBS 2007-2) - 2014

MARC has affirmed 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. The rating on the residential mortgage-backed bonds continues to be supported by the strong credit enhancement of 143.7% based on the outstanding principal of non-defaulted mortgages of RM1,653.0 million and collection account balance of RM530.8 million. Cagamas MBS is a wholly-owned special purpose vehicle of Cagamas Holdings Berhad (Cagamas Holdings) incorporated solely for the issuance of mortgage-backed securities via the securitisation of eligible government staff housing loans (GSHL) under Islamic and conventional principles. The collateral pool consists mainly of mortgage loans (Portfolio 2007-2) granted to eligible civil servants and government pensioners. Direct salary/pension deductions by the Accountant General’s Department/Pension Administrator will form the source of repayment for CMBS 2007-2 while the transaction servicing is conducted by Bahagian Pinjaman Perumahan (BPP).

Based on the servicer’s quarterly report for CMBS 2007-2 dated February 24, 2014, the outstanding principal of the collateral pool declined to RM1,667.3 million from RM1,884.8 million on the previous reporting date of February 22, 2013 (Quarter 22). The collateral pool represents 53,004 mortgages with an average size of RM31,455, weighted term to maturity of 11.2 years and weighted average seasoning of 13.2 years. The cumulative default rate continued to be stable at 0.47% of the initial pool balance after 26 quarters of performance compared to 0.45% from the last review, and is significantly lower than MARC’s assumed rate of 2.55%. 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 in the 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) decreased substantially to 3.56% from 25.47% in Quarter 22 following the implementation of electronic funds transfer at the Accountant General’s Department effective January 1, 2013. The cumulative prepayments on Portfolio 2007-2 rose to 10.04% of the initial pool balance from 8.47% 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.

As of February 24, 2014, the total cash balance of RM530.8 million is sufficient to cover the upcoming RM380.0 million redemption of CMBS 2007-2 on August 22, 2014. The transaction’s structure which allows early redemption of the back-ended tranches reduces the risks relating to negative carry and asset-liability mismatches in the event of high prepayments. Under MARC’s assumed high stressed default rate of three times and prepayment rate of 200.0%, the projected collection of Portfolio 2007-2 should be able to comfortably cover the next lumpy repayment of RM525.0 million in 2017 with a remaining cash balance of RM470.9 million after repayment.

The stable outlook is premised on the rating agency’s expectation that the collateral pool will continue to demonstrate low default, adequate prepayments and stable servicing.

Strengths