RAM Ratings reaffirms AAA rating of Cagamas MBS CMBS 2001-1

KUALA LUMPUR, Dec 27, (Reuters) - Malaysia's RAM Ratings has reaffirmed the AAA rating of Series 3 and Series 4 of Cagamas MBS Berhad's (Cagamas MBS) 1,555 million ringgit residential mortgage-backed securities (RMBS or Bonds), i.e. CMBS 2004-1, with a stable outlook.

The Bonds are secured by a static portfolio of government staff housing loans (GSHLs) that are serviced via monthly deductions from the pensions of retired public-sector employees. The rating of CMBS 2004-1 addresses the credit risks associated with the transaction, but does not take into consideration the likelihood of early redemption of the pass-through tranche, i.e. Series 4, prior to its maturity date.

The reaffirmation is premised on the available overcollateralisation (OC) ratio, the overall performance of the collateral pool, and the credit support afforded by the RMBS structure. Based on the reporting date as at 20 October 2010, the securitised portfolio had a collateralisation ratio of 169.79 percent based on the outstanding GSHL principal balance of 702.23 million ringgit and 37.28 million ringgit repurchased GSHLs, together with 338.68 million ringgit of cash balances and permitted investments. This level of OC is deemed to provide sufficient protection against the risk of prepayment and negative yield spreads between the interest earned on the GSHLs and the coupon payments on the Bonds under a "AAA" stress scenario.

Based on the quarterly report as at 20 October 2010 (for the period ending 28 February 2010), the portfolio of GSHLs comprised 40,100 mortgage loans, with an average outstanding balance of 17,512 ringgit per account; the weighted-average remaining term stood at 9.04 years. As at the same cutoff date, of the 756 mortgages (with a total principal value of 12.22 million ringgit) that were more than 6 months in arrears were mainly due to delayed notification to Bahagian Pinjaman Perumahan vis-a-vis borrowers who had passed away; another 246 loans (or 33 percent) were under deceased status and pending reimbursement of mortgage-reducing term assurance claims from the insurer.

Nonetheless, RAM Ratings does not expect the current level of delinquency to become a major concern because it represents only about 0.63 percent of the portfolio's original principal balance.

Based on the portfolio's performance, our cashflow analysis indicates that the portfolio will be able to generate sufficient cash to cover the expected coupon payments on a timely basis, as well as the final principal repayment on CMBS 2004 on each redemption date. Based on the closing cash balance and permitted investments of 338.68 million ringgit in Collection Account 2004-1 as at the reporting date 20 October 2010, there is already more than sufficient funds to redeem the 290 million ringgit due under Series 3 in October 2011.

Based on the residual cash balance after redeeming Series 3 and the portfolio's current performance, RAM Ratings expects there to be enough funds for the partial redemption of Series 4 in October 2011 (the next scheduled maturity date of CMBS 2004).