MARC has affirmed its AAA rating on Cagamas MBS Berhad’s (Cagamas MBS) RM2,410.0 million asset-backed fixed rate serial bonds (CMBS 2007-2) with a stable outlook. The rating action affects RM1,140.0 million of outstanding bonds. Cagamas MBS is a wholly-owned special purpose vehicle of Cagamas Holdings Berhad and was established to issue mortgage-backed securities via the securitisation of eligible government staff housing loans (GSHL) under Islamic and conventional principles. CMBS 2007-2 is backed by a pool of mortgage loans granted to eligible civil servants and government pensioners (Portfolio 2007-2).

The affirmed rating is supported by CMBS 2007-2’s strong credit enhancement level of 159.1% based on an outstanding principal of non-defaulted mortgages of Portfolio 2007-2 amounting to RM1,457.6 million and collection account balance of RM355.7 million as of quarterly reporting date February 23, 2015 (Quarter 30). Mortgage instalments in relation to Portfolio 2007-2 are made through direct salary/pension deductions administered by the Accountant General’s Department/Pension Administrator. These form the source of repayment for CMBS 2007-2. The transaction servicing of the securitised Portfolio 2007-2 is conducted by the government’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP).

Portfolio 2007-2 has continued to demonstrate strong performance as of the reporting date as reflected by a cumulative default rate of 0.46% of the initial pool balance. This is comfortably below MARC’s assumed rate of 2.99%. GSHL defaults, defined as accounts in arrears for more than nine months, were mainly attributed to lags and delays in deductions due to changes in eligibility status of borrowers and time taken on processing insurance claims on deceased borrowers. However, Portfolio 2007-2’s total delinquent mortgages (arrears for three months or less) increased sharply by 125.7% y-o-y to RM222.4 million as at August 31, 2014 due to administrative and payment reconciliation delays following BPP’s migration to a new system (Sistem Pinjaman Perumahan Bersepadu) between June 2014 and March 2015. MARC expects the impact of the system migration on the delinquency rate for mortgages to persist for the next three to four quarters.

The cumulative prepayments on Portfolio 2007-2 rose to 11.38% of the initial pool balance from 10.04% since MARC’s last review. This translates to an average quarterly prepayment rate of 0.38%, which remains well within MARC’s assumed stressed scenarios. In the event of high prepayments, the transaction’s structure allows for early redemptions of the back-ended tranches which in turn would reduce concerns on negative carry and asset-liability mismatches. After 30 quarters of performance, Portfolio 2007-2’s outstanding principal of the collateral pool declined to RM1,471.5 million from RM1,667.3 million on the previous reporting date of February 24, 2014 (Quarter 26). The collateral pool represents 50,984 mortgages with an average size of RM28,862, weighted term to maturity of 10.5 years and weighted average seasoning of 14.0 years. MARC’s sensitivity analysis indicates that the projected collection of Portfolio 2007-2 is able to cover the next lumpy repayment of RM525.0 million in 2017 under an assumed high stressed default rate of three times and prepayment rate of 200.0%.

The stable outlook is premised on the rating agency’s expectation that the collateral pool will continue to demonstrate stable servicing and sustained high overcollateralisation that remains supportive of the rating.

Contacts:
Noor Izyani Saad, +603-2082 2256/ izyani@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my.