Published on 30 Aug 2019.
RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s RM2.41 billion residential mortgage-backed securities (CMBS 2007-2). Cagamas MBS is a limited-purpose entity incorporated for the purpose of securitising government staff housing loans (GSHLs) and government staff Islamic home financing facilities (GSIHF).
The reaffirmation of the rating is premised on the portfolio’s stable performance which has resulted in superior collateral coverage – its overcollateralisation (OC) ratio had risen to 123.6% as at end-November 2018 (end-February 2018: 121.8%). The OC ratio is backed by RM735.9 mil in mortgages (by principal outstanding) and RM639.0 mil in cash and permitted investments, against the RM615 mil total outstanding balance of the last three tranches. To date, RM355 mil remains outstanding following the redemption of the RM260 mil Tranche 5 on August 2019. The significant credit support provides a more than sufficient buffer against default and prepayment levels in an AAA stressed scenario as well as negative variance on investment returns. Further, the rating is supported by the non-discretionary repayment structure of the GSHLs, which reduces exposure to the credit risk of borrowers.
During the review period, the transaction continued to record a net default performance that was better than our base-case expectation – the cumulative net default rate as at end-November 2018 stood at 0.44% against our assumption of 5.97%. Prepayments were lower than the levels assumed, with the cumulative prepayment rate at 15.26% compared to the assumed 18.50%. The option to partially redeem the last two tranches of the bond, although permitted, has not been exercised, as cashflow arising from excess prepayments has yet to meet the projected amounts, despite having fulfilled the minimum threshold of RM90 mil for the Collections Account. As at 30 November 2018, the portfolio of GSHLs comprised 31,219 accounts, with an average outstanding balance of RM23,572. The weighted-average term to maturity of the CMBS 2007-2 pool stood at 8.10 years as at the same date.
Under Budget 2019, civil servants (grade 54 and below) and pensioners received a one-off special payment of RM500 and RM250, respectively, while pensioners receiving pensions of less than RM1,000 were paid an additional one-off assistance sum of RM500. Further, the government had introduced the Bantuan Sara Hidup programme early this year – a tiered cash handout scheme where the sums paid out depend on the income level of eligible persons. These initiatives were not observed to have any significant impact on current prepayment levels, likely due to the subsidised interest rates of GSHLs as well as persisting inflationary pressures and affordability issues. While the new administration has provided an assurance that the civil service will not be downsized, there have been proposals to reshuffle and reassign civil servants at all levels, which could result in higher incidences of transfers and, in turn, possibly more administrative delays in deductions. During the review period, the respective delinquency profiles of portfolios under Cagamas MBS Berhad were generally stable.
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Ratings on Cagamas MBS Berhad CMBS 2007-2