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. CMBS 2007-2 represents the fifth 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 10.4 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 2007-2) 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 2007-2.

As at August 23, 2010, CMBS 2007-2’s outstanding mortgage portfolio consisted of 59,815 fixed-rate mortgages with an outstanding pool balance of RM2,401.7 million, excluding RM9.77 million in defaults (loan amounts in arrears for more than 9 months); this compares to the portfolio’s position at issuance which consisted of 63,461 fixed-rate mortgages worth RM3,016.0 million in total. Since then, higher-than-expected prepayments have contributed to the faster-than-projected paydown of the mortgage pool balance. Additionally, Cagamas MBS has redeemed its RM515.0 million Tranche 1 bonds under CMBS 2007-2 on August 20, 2010, leaving the total amount of outstanding bonds at RM1,895.0 million; Cagamas MBS did not exercise its option to redeem Tranches 6 and 7 of CMBS 2007-2. Credit enhancement level for the outstanding bonds subsequent to this redemption was calculated to be 133.2%, supported by cash and permitted investments of RM123.2 million in CMBS 2007-2’s Collection Account and the principal balance of performing mortgages within the collateral pool.

Based on Cagamas’ quarterly report on Portfolio 2007-2’s performance dated August 23, 2010, the cumulative default rate for the collateral pool registered at 0.32%, an amount significantly lower than MARC’s assumed cumulative default rate of 2.38% for the same period. The performance report attributes a 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. Concurrently, the pool’s cumulative prepayment rate stood at 4.30%, which falls within MARC’s range of prepayment stress tests (includes both high and low prepayment scenarios) and does not cause any breach of rating thresholds.
 
MARC expects Portfolio 2007-2 to continue to perform well and Cagamas MBS to be in a position to exercise its option to partially redeem the last two tranches of CMBS 2007-2 on the redemption date for Tranche 2. The option to exercise can only be made provided that a RM90 million cash balance in the Collection Account remains post redemption. This ensures a minimum amount of liquidity protection for future interest and principal payments. That said, MARC is of the opinion that available credit support vis-a-vis the existing credit enhancement level offers significant protection in the event that there are adverse changes in performance of the collateral pool.

Contacts:
Ruben Khoo Sheng Luen, 03-2082 2265/ rubenkhoo@marc.com.my;
Sandeep Bhattacharya, 03-2082 2247/ sandeep@marc.com.my.