special report latin america - international financial … american securitization 2012...

JANUARY 30, 2012 STRUCTURED FINANCE

SPECIAL REPORT

Table of Contents

EXECUTIVE SUMMARY 1 ARGENTINA 2 BRAZIL 3 MEXICO 6 CROSS-BORDER MARKET 9 APPENDIX 1: 2011 REVIEW 10 RATING LIST (ONLY DEALS RATED BY MOODY’S) 14 MOODY’S RELATED RESEARCH 16 ANALYST CONTACTS ARGENTINA: Martín Fernández Romero Vice President-Senior Analyst 54.11.3752.2021 [email protected]

Rodrigo Conde Associate Analyst 54.11.3752.2030 [email protected]

BRAZIL: Johann Grieneisen Vice President-Senior Analyst 55.11.3043.7305 [email protected]

Sara Tonello Associate Analyst 55.11.3043.7331 [email protected]

MÉXICO: Rene Ibarra Vice President-Senior Analyst 52.55.1253.5710 [email protected]

Joel Sanchez Hernandez Analyst 52.55.1253.5726. [email protected]

US: Karen Ramallo Assistant Vice President- Analyst 1.212.553.0370 [email protected]

» contacts continued on the last page

Latin America Securitization: 2012 Outlook

Executive Summary

In 2012, the credit quality of new and outstanding structured transactions in the Latin American markets will be stable, although that of new deals in Argentina and to a limited extent Brazil will be somewhat weaker.

In Argentina, new transactions will be weaker than existing transactions because of increased competition among lenders in the consumer loan market, which will increase the likelihood that lenders will weaken standards, a credit negative. Delinquencies will rise because of high inflation and a deterioration in real salaries. In contrast, the credit quality of existing transactions will be stable because of robust credit enhancement levels built up in the last few years, especially in deals with turbo sequential-payment structures that trap available excess spread.

In Brazil, the credit quality of new transactions will also be weaker. As a result of new regulations that took effect 1 January 2012, banks will cut the size of the equity tranches of ABS they sponsor significantly and issue new or larger mezzanine classes. The credit profile of the senior tranches of these multi-tranche structures will be similar to that of senior tranches to date. Mezzanine tranches, however, will become riskier, and investors in these mezzanine securities will demand higher returns to compensate for the heightened credit risk. In contrast, the credit quality of outstanding transactions will be stable even as the benign credit cycle starts to soften. Delinquencies will increase for all asset classes but remain within the parameters of our rating analysis for securitizations we rate.

In Mexico, the credit quality of new securitizations will be strong; INFONAVIT and FOVISSSTE, the government-related issuers, will continue to dominate RMBS issuance. In addition, the credit quality of existing securitizations other than RMBS from the non-bank Sofol sector will remain strong. However, hurdles to the performance of Sofol RMBS of mortgages to low income borrowers will persist. In 2012-13, improving servicer efficiency in foreclosure proceedings and real-estate-owned property sales will be critical to reducing recovery lags and maximizing recoveries. Absent positive developments in this area, we will consider using more stressed recovery lag and sensitivity of loss assumptions when rating and monitoring Mexican RMBS.

In the cross-border markets, the credit quality of new future flow transactions will be strong in 2012 because the largest Latin American banks will continue to issue diversified payment rights (DPR) transactions. The credit risk of DPR transactions aligns closely with that of the banks originating the receivables. Most of the Latin American banking systems currently have stable outlooks. In addition, the first cross-border covered bonds may come to market in Mexico, where regulators are working on special regulations to allow the issuance of covered bonds, while the legal framework in other smaller Latin American jurisdictions is already in place.

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2 JANUARY 30, 2012 SPECIAL REPORT: LATIN AMERICA SECURITIZATION: 2012 OUTLOOK

STRUCTURED FINANCE

Argentina

Credit Quality of New Transactions Will Decline Slightly in 2012

Future Deals Will be Slightly Weaker Because of Increased Competition Among Lenders

New transactions in 2012 will be weaker than existing transactions because of competition. Competition has increased among lenders in the consumer loan market and increase the likelihood that lenders will weaken standards, a credit negative. So far, most banks and consumer finance companies have focused their commercial efforts in increasing national coverage, for example by opening more branches, rather than weakening their underwriting criteria. However, a persistent competitive market will tempt lenders to weaken credit standards in order to increase market share.

New Structures Will Continue to be Very Strong

Most securitizations in Argentina benefit from high credit enhancement levels. Senior tranches, generally rated Aaa.ar (or Ba2-Ba1 in the Global Scale), have an initial subordination of 15-20%. This subordination level will increase over time because of a turbo sequential payment structure that captures 100% of the excess spread available in the transaction.

These transactions also benefit from robust excess spread levels. Excess spread is the difference between the interest rate yield on the securitized assets and the coupon paid on the different securities, minus trust expenses and taxes. This spread will typically be in the 25% to 45% range, on an annual basis, depending on the characteristics of the assets and prevailing interest rates. Usually, loans originated by banks regulated by the Argentine Central Bank will bear lower interest rates than those on loans originated by financial companies. Market interest rates have increased during the last part of 2011, which compressed spreads for most transactions. Lenders have been raising interest rates by 4%-6% to cope with this increase in their funding cost. Figure 1 shows the trend of BADLAR interest rate in recent weeks. BADLAR is a reference interest rate for floating rate bonds of securitization in Argentina.

FIGURE 1

BADLAR Interest Rate (Argentina)

Source: BCRA

Credit Quality of Existing Deals Will Remain Stable

Credit Enhancement to Mitigate Higher Delinquency Levels in 2012

Delinquency levels will rise in 2012 because of high inflation levels and a deterioration of real salaries. However, the credit quality of existing transaction will remain stable because robust credit enhancement levels have built up in the last years, especially in deals with turbo sequential-payment structures that trap any available excess spread. A sudden deterioration of the securitized pools is more likely to impact less seasoned transactions.

Although high inflation levels will likely translate into higher delinquency levels, the effect of high inflation on real salaries has so far been moderate because of the annual salary increases granted by the private and public sectors. Labor unions have actively negotiated annual salaries increases that have compensated or more than compensated for inflation. As a result, high inflation has not had much of an impact on the performance of the banks’ loan portfolios so far.

However, delinquencies and losses for the banks’ portfolios in general and the securitized pools in particular will rise if further salary increases are insufficient to compensate for inflation in 2012. The positive effect of continuous increase in salaries in nominal terms will slowdown if the government decides to moderate nominal salaries increases in order to take the economy into a soft landing. If so, inflation will affect negatively real salaries and contribute to weaker credit performance in the future.

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High Interest Rates Increase Risk

The sudden increase of the BADLAR rate, a reference interest rate for floating rate bonds of securitization in Argentina, has two credit negative consequences. First, as mentioned above, it has reduced the available excess spread for most securitizations in Argentina. In addition, it will also lead to defaults in securitized pools if high interest rates limit the availability of credit to borrowers to refinance existing loans, because originators will be reluctant to lend if they are having difficulty obtaining sources of funding other than BADLAR-based securitization funding.

Servicing Risk Continues, Especially for In-Store Payments

Although regulations proposed by the Comisión Nacional de Valores (CNV) address some of the concerns about servicing risk, these regulations do not mitigate the risks concerning in-store payments, which are payments in cash by a borrower to the servicer at the servicer’s stores or branches.

For in-store payments, there is an increased likelihood that delinquencies will increase during a servicing transfer. If the new trustee directs borrowers to make payments at other locations, it will have to notify each borrower to direct payments to the backup servicer. As a result, the borrowers may keep paying at the original servicer. In addition, the handling of cash heightens commingling risk because the original servicer may not remit the cash to the trust account, as occurred in a well-known servicer default in Argentina (Bonesi).

Servicing risk is rising. Under the current scenario of high interest rates and compressed spreads, more servicers will face financial constraints in the next few months.

Issuance Will Remain Strong in 2012

Higher Issuance Levels As Market Conditions Tighten

Argentina’s domestic securitization activity will continue growing in 2012 but at a lower rate than in 2011 because of a possible deceleration in GDP and consumption growth rate. Many retailers and some consumer finance companies are likely to continue using securitizations in 2012, despite a recent increase in the market interest rates. These companies have a strong reliance on securitization as a source of funding. Additionally, we anticipate that the government will continue to sponsor financial trust vehicles, which have proven to be a suitable instrument to channel government resources to the real economy. For example, there have been issuances sponsored by the Government to finance the construction of power plants, low income housing and highways.

Higher Asset Diversification, but Consumer Loans will Continue to Be the Main Securitized Asset

The dominant assets will continue to be personal and consumer loans, and to a lesser degree, auto loans and guaranteed SMEs loans. The mix of securitized assets has remained stable when compared to 2010. Personal loans, consumer loans and large-infrastructure transactions represent 89% of the total amounts issued in 2011. Personal loans and consumer loans represent approximately 47% of the market. Securitizations of personal loans with automatic deduction features will increase in amount and frequency as most originators will continue originating these profitable loans, which also have relatively low delinquencies and losses. Other important assets are guaranteed private label credit cards and SMEs Loans, which constitute 6% and 1% of the total amounts issued, respectively.

Large-infrastructure transactions, purchased primarily by ANSES (Figure 14), constitute 42% of total issuances. Government-related transactions financed mainly through ANSES, the National Government Social Security Agency, will dominated the market in absolute size.

Brazil

Executive Summary

New regulations that took effect 1 January 2012 will change the way issuers structure securitization transactions. To qualify as off-balance-sheet financing, new transactions will need to transfer risk to the investors of the securitization vehicle through mezzanine tranches. The change will not hurt the credit quality of senior tranches but will result in riskier mezzanine tranches in future securitizations.

The credit quality of outstanding transactions will remain stable as the benign credit cycle starts to soften. The level of delinquencies will increase across all asset classes but remain within the parameters of our rating analysis for the securitizations we rate.

The credit environment will not deteriorate much beyond the softening of credit conditions that has already taken place. The risk of a sharp economic downturn with severe asset deterioration is remote.

Investors looking for higher-yield assets will show renewed interest in securitizations, given the low levels of real interest rates. Commercial banks will also look to securitization to replace interbank loan sales.


STRUCTURED FINANCE

Credit Quality of New Transactions Will Be Weaker

Overall Impact to Investors Will Range from Neutral to Negative but Never Positive

As a result of new regulations coming into effect 1 January 2012, banks will cut significantly the size of the equity tranches of ABS they sponsor and issue new or larger mezzanine classes. The credit profile of the senior tranches of these multi-tranche structures will be similar to that of senior tranches issued to date. Mezzanine tranches, however, will become riskier, and investors in these mezzanine securities will demand higher returns to compensate for the heightened credit risk. These investors will differ from investors in Brazilian ABS to date, who have largely invested only in highly rated securities.

New Regulations Encourage a Material Transfer of Risk to Investors

Two key regulations address risk transfer and risk retention in transactions, with regard to on- or off-balance sheet classification. These regulations are consistent in their approach to both risk transfer and risk retention, and take effect 1 January 2012, after which we expect equity tranches in off-balance sheet securitizations will be much smaller than in the past, well below the traditional subordination levels of 20% or more.

Resolution 3533 from the Brazilian Central Bank (BCB) determines how regulated financial institutions account for and classify securitizations on their balance sheets. Transactions in which sponsors retain thick equity tranches will qualify as on-balance sheet transactions, and the sponsors will have to consolidate them. According to separate market guidance from the BCB, equity tranches thicker than historical losses plus 2 standard deviations will trigger the on-balance sheet classification. Resolution 3533 applies only to financial institutions.

Instruction 489 from the Comissão de Valores Mobiliários, Brazil’s capital markets regulator, aligns the reporting and accounting standards of Brazilian securitizations with international financial reporting standards (IFRS), and establishes the risk transfer and risk retention rules for securitizations. Although it stipulates that sponsor support will trigger reclassification of a securitization as an on-balance sheet transaction, it does not prescribe any maximum amount for the equity tranches. Based on discussions with market participants to date, we expect future securitizations to incorporate equity tranches of around 5% of the capital structure. Instruction 489 states that the trustee is responsible for analyzing whether the transaction has achieved risk transfer.

Emergence of New Transaction Structures

As a result of the regulations, the structures of new transactions will differ from those in the past. Historically, equity tranches in Brazilian ABS have been sizeable, at 20% to 35% of the total capital structure. While most transactions had only a senior tranche and an equity component (a single-class structure), some transactions also had mezzanine tranches, although these were rarely larger than 7% of the capital structure in transactions that we rate.

The single-tranche structures will give way to multi-tranche structures to transfer risk and achieve off-balance sheet classification, while keeping the credit impact on the senior shareholders neutral. As Figure 2 shows, as the equity falls to 5% of the capital structure, a new (or larger) mezzanine tranche will fill the gap between the equity tranche and the subordination level supporting the senior tranches, thereby maintaining credit enhancement for the senior tranche. The new, thicker mezzanines, with only 5% or less protection, will be riskier than older mezzanines backed by a substantial equity position.

FIGURE 2

Traditional (Single-Tranche) Versus New Transaction Structures (Multi-Tranche) – (Brazil)

Source: Moody´s Investors Service


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Credit Quality of Existing Deals to Remain Stable Even as Credit Quality of Underlying Assets Weakens

High Credit Enhancement Levels in Brazilian Securitizations to Offset Higher Delinquency Rates

The credit quality of senior tranches will remain stable. High credit enhancement levels in the transactions we rate will protect against higher loss rates. Higher losses will arise as a result of the softening of the credit cycle in 2012 and the resulting higher delinquency rates, particularly for securitizations of credit loans to private individuals.

Economic Slowdown Yet to Affect Historically Low Unemployment Rate

The credit quality of existing deals we rate has been stable to date, based on the stable performance of the assets backing the transactions. Defaults of securitizations have been rare, according to market data. Obligations of private individuals rather than corporates back a significant number of Brazilian securitizations. Figure 3 shows the unemployment rate over the last five years. The rate declined to a historical low of 5.2% in November 2011. The direct consequence of this unabated decline has been the satisfactory credit performance in transactions to date.

FIGURE 3

Brazil’s Unemployment Rate, 2007-2011

Note: Unemployment rate is the percentage of the economically active population (população economicamente ativa), and is not seasonally adjusted Source: IBGE (Instituto Brasileiro de Geografia e Estatística) - Monthly Employment Survey; Moody’s Investors Service

Economic Slowdown Suggests the Credit Cycle is Turning

Even as unemployment has declined to a historical low, quarterly GDP growth dropped to nearly zero in the 3Q2011 (Figure 4). The decline in GDP growth suggests that unemployment could rise.

FIGURE 4

Quarterly GDP Growth (Brazil)

Note: Seasonally adjusted data for quarterly GDP; GDP at market prices. Moody’s percentage change from the preceding quarter, seasonally adjusted. Source: Brazilian Central Bank, Moody’s Investors Service

Meanwhile, as Figure 5 shows, 90-plus delinquencies have risen in 2011 in all segments related to loans to individuals, even in the personal loans sector1

Arrears for vehicle loans nearly doubled, to 4.9% in November 2011 from 2.6% in January 2011 as Figure 5 shows. As the credit cycle turns and the unemployment rate rises, vehicle loans will be most at risk, given their long tenors, with maturities of up to 60 months.

. Most of these general-purpose personal loans, around 60%, are in the form of payroll-deduction loans, which typically have lower delinquency rates by virtue of the payment via payroll deduction. However, the delinquency rate for even this asset class has increased nearly 30%, to 5.5% in November 2011 from 4.2% in January 2011. The effects of credit weakening are greater in non-payroll-deduction personal loans to private-sector employees.

FIGURE 5

Loans to Individuals: Percentage of 90+ Days’ Delinquencies (Brazil)

Note: “Personal loans” are general-purpose consumer loans, including payroll-deduction consumer loans (crédito consignado). “Vehicle loans” are auto loans to private borrowers, and do not include leasing operations. “Consumer loans” are general-purpose or point-of-sale loans for the purchase of items such as durable or white goods.

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Source: Brazilian Central Bank, Moody’s Investors Service

In absolute terms, consumer loans2 have had the largest increase in arrears, to 13.8% in November 2011 from 8.8% in January 2011, but the tenors of these loans are typically much shorter than those of vehicle loans, and lenders price these loans fully taking into account the increase in the arrears rate. Figure 6 shows that the average annual effective interest rate on these riskier loans has increased to around 56% from 4%.

FIGURE 6

Loans to Individuals: Annual Interest Rates by Segment (Brazil)

Note: “Personal loans” are general-purpose consumer loans, including payroll-deduction consumer loans (crédito consignado). “Vehicle loans” are auto loans to private borrowers, and do not include leasing operations. “Consumer loans” are general-purpose or point-of-sale loans for the purchase of items such as durable or white goods. Source: Brazilian Central Bank, Moody’s Investors Service

Risk of Sharp Downturn in Economy and Resulting Credit Deterioration is Remote

For securitizations we rate, the likelihood of any credit loss scenarios in which investors of the senior tranches would start to incur losses is remote. These severe scenarios involve a sharp and prolonged downturn in the economy, along with increases in both unemployment and late-stage delinquencies that translate into losses for the securitization structures.

Issuance Will Pick Up in 2012

A Fall in Interest Rates Will Lure Yield-Hungry Investors to Securitizations

As real interest rates fall, as a result of lower nominal interest rates coupled with higher inflation, investors will seek higher-yielding assets as their legacy investments in publicly placed securities mature.

FIGURE 7

Nominal and Real Interest Rates (Brazil)

Note: Real expected interest rate is the DI rate (Brazilian Interbank Deposit Rate) set in the DI Rate vs Fixed Rate swap for 360 days, adjusted for 12-month forward inflation expectations. Source: Brazilian Central Bank, Moody’s Investors Service

Private Securitization Transactions to Replace Interbank Portfolio Sales

Another trend in 2011 that will continue in 2012 is the use of privately placed securitizations by financial institutions. Banks that had previously been engaged in the interbank wholesale market have started using securitizations. The motivation of buyers varies, but one common theme has been the higher level of formalization these structures afford, given the tight regulatory environment for Brazilian securitizations. According to Brazilian regulations, securitizations issued by investment funds in credit rights, one of the two types of securitization vehicles, benefit from clearly defined obligations of the transaction parties, required disclosures and ongoing reporting of information, and increased regulatory oversight in general.

Mexico

The credit quality of new Mexican securitizations will remain strong as INFONAVIT and FOVISSSTE, the government-related issuers, continue to dominate RMBS issuance. In addition, the credit quality of existing securitizations other than RMBS issued by the non-bank Sofol sector will remain strong. However, the performance of Sofol RMBS of mortgages to low-income borrowers will continue to face serious challenges. In 2012-2013, improving servicers’ efficiency in foreclosure proceedings and real-estate-owned (REO) property sales will be critical to reducing recovery lags and maximizing recoveries. Absent positive developments in this area, we will consider using more stressful recovery lag and severity of loss assumptions when rating and monitoring Mexican RMBS.

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Credit Quality of New Transactions Will Remain Strong in 2012

Future Deals from INFONAVIT and FOVISSSTE Will Be Strong, Despite FOVISSSTE’s Reporting Discrepancies

Government-related entities INFONAVIT3 and FOVISSSTE,4 the issuers who will continue to dominate the Mexican securitization scene in 2012 as they have since 2009, will continue to securitize strong collateral. As government-related entities, they both offer stable servicing platforms, because of their financial stability.

Although INFONAVIT and FOVISSSTE securitize mortgages to primarily low-income or otherwise risky borrowers, their transactions performed well throughout the crisis and continue to do so, because the borrowers pay via automatic payroll deduction. The payroll deduction reduces the risk associated with the low-income borrowers that the two entities target. Since INFONAVIT and FOVISSSTE can automatically deduct mortgage payments from their borrowers’ paychecks, their RMBS are subject to less credit risk, as long as borrowers remain employed in the formal economy. The formal economy accounts for approximately one third of employment in Mexico5 and includes tax-paying, salaried employees that work for private- or public-sector employers offering social security retirement benefits. Their RMBS performance weakened, however, mirroring the weakening in labor market conditions that started in 2008; however, performance has since improved as layoffs and unemployment in the formal economy have subsided. In 2012, FOVISSSTE will need to address discrepancies in the reporting of its securitized pool collections. These discrepancies, which include differences between what the master servicer reports as collections in the collections reports and what FOVISSSTE actually collects and deposits, have raised concerns about the quality and clarity of the information in the reports. We believe that FOVISSSTE will promptly remedy the reporting discrepancies because its ownership of residual certificates in at least 28% of its deals aligns its interest strongly with that of investors. Once it does so, we can evaluate whether FOVISSSTE has deposited more or less money than it should have into the trust accounts. We placed our Aaa.mx(sf) and Baa1(sf) ratings on ten of FOVISSSTE’s TFOVIS RMBS on review for downgrade on 22 November 2011 because of these reporting inconsistencies; however, we maintained our Aaa.mx(sf) and Baa1(sf) ratings on the affected certificates because of the transactions’ solid performance and structural protections, although the ratings are currently on review.

Poor Performance of Inflation-Linked Mortgages Will Result in Continued Shift to Less Risky Mortgage Products

New securitizations in 2012 will contain less risky mortgage products than older ones, especially with the phasing out of the inflation-linked mortgages known as Unidades de Inversión (UDI) mortgages. In June 2011, Mexican housing agency Sociedad Hipotecaría Federal (SHF) introduced a plan to eliminate this poorly performing, inflation-indexed product and replace it with a new defined-payment peso mortgage.6 The new defined-payment peso mortgage, which originators have yet to securitize, will perform better than the UDI-indexed product because the defined payments mortgage eliminates the payment uncertainty inherent in the inflation-indexed UDI mortgage and will not result in negative amortization, which has contributed to the UDI loans’ poor performance.

UDI mortgages are fixed-rate mortgages denominated in the Mexican UDI inflation-linked currency and have been the primary driver of Mexican mortgage defaults in recent years. Sofoles,7 or non-bank mortgage lenders in Mexico, were the primary originators and securitizers of UDI mortgages. Low-income Sofol borrowers, most of whom had risky UDI mortgages, are not subject to automatic payroll deductions. Both the nominal mortgage balance and monthly payments of the UDI product rose with inflation, which introduced payment uncertainty and the possibility of negative amortization that could exceed 20% of the mortgage’s original pool balance. UDI mortgages attracted a less creditworthy borrower because payments earlier in the term of the mortgage were lower than for standard peso-denominated loans, which are the standard product that banks originate to high-quality borrowers.

Credit Quality of Existing Non-Sofol Sector Deals Will Remain Strong

Performance of Bank, INFONAVIT, and FOVISSSTE RMBS Will Be Strong The performance of RMBS issued by banks, INFONAVIT and FOVISSSTE will remain strong and stable in 2012, as Mexico continues its gradual recovery from the global recession, despite significant downside risks to the global and Mexican economic outlooks. These transactions fared well during Mexico’s economic recession, but have not been immune to rises in delinquencies. However, even though delinquencies will continue to increase as the securitized mortgage pools age, the rate of increase will abate.


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We have lowered our growth forecasts for Mexico and now expect that its 2012 growth rate will be around half the 2010 growth rate of 5.5%. Given the spillover effect of lower growth in the US and other advanced economies, growth in Latin America will decelerate in light of reduced demand for exports, declining consumer and investor confidence, and capital outflows. The economies of countries such as Mexico, with close linkage to the US economy, face the greatest risks to growth. More importantly for RMBS performance, however, employment will continue to recover gradually, barring a sudden downturn in the US business cycle. Mexico began to emerge from recession in the third quarter of 2009 after a year-long contraction, although the employment recovery has lagged because of the depth of the economic contraction. However, signs of improvement in the labor market have since emerged. As employment rises, more borrowers will be better able to make their payments, which will stabilize RMBS performance.

A drop in unemployment will have a particularly pronounced effect on INFONAVIT and FOVISSSTE because they grant mortgages to primarily low-income borrowers. Since these borrowers usually have minimal to non-existent savings, any reduction in income if they become un- or under-employed will hurt their ability and willingness to make their loan payments. As long as the borrowers remain employed, however, the automatic payroll deduction will limit the extent of defaults. The deterioration in INFONAVIT and FOVISSSTE RMBS performance mirrored the weakening of labor market conditions that started in 2008, but performance has since improved as layoffs and unemployment have subsided.

Continued growth in the Mexican economy will stabilize the performance of bank-issued RMBS as well. Obligors whose mortgages back these RMBS typically have higher incomes and savings, although the sector does not benefit from servicing via automatic payroll deduction. However, the more financially savvy, delinquent borrowers in this sector are more likely to resume their mortgage payments as soon as they find employment because they fully understand the repercussions of defaulting on a mortgage.

Sofol RMBS Performance and Recovery Metrics Will Remain Weak Delinquency Levels Remain High In contrast, the performance of Sofol RMBS will continue to face serious challenges in 2012. Sofol RMBS performance will deteriorate at a somewhat slower pace, but it is still too early to say that performance in this sector has stabilized.

The absence of automatic payroll deductions will result in lower cure rates for all defaulted loans, even as the Mexican economy continues to improve. Unlike INFONAVIT and FOVISSSTE, which can resume automatic payroll deductions as soon as an unemployed borrower re-enters the workforce in the formal economy, Sofoles are at the mercy of the borrower’s decision whether or not to resume mortgage payments. Sofol RMBS performance has suffered as a result of not only rising unemployment, but also rising underemployment during the economic downturn. Unlike INFONAVIT, FOVISSSTE, and bank RMBS, many Sofol RMBS have a significant share of borrowers working in the informal economy who lack a steady source of income.

One positive for 2012 performance is that any servicing transfers will likely proceed smoothly. In 2011, the Mexican RMBS sector experienced for the first time large-scale servicing transfers in more than 15 RMBS from Hipotecaría Su Casita and GMAC Financiera backed by mortgages to primarily low-income borrowers. The substitute servicers include Patrimonio, ING Hipotecaría, Pendulum, and Tertius. These transfers took place over the course of at least six months, for the most part without a significant disruption to collections or rise in delinquency levels.

Nonetheless, these substitute servicers may not all have the incentive to grow and improve their servicing platforms as necessary to control the transferred deals’ high delinquency levels and maximize recoveries on defaulted loans. The servicer’s role is especially crucial in managing the delinquency levels of low-income borrowers, who require more frequent and intensive contact; any attempt to shortchange servicing levels will likely translate into increased borrower defaults. The current servicing fee structure, in which most servicers receive a monthly fee equal to a fixed percentage of the pool balance, is not always profitable enough to motivate substitute servicers to expedite pending foreclosures and REO inventory sales; aside from the servicing fees, the substitute servicers do not have any other economic interest in the deals they service. A variable and performance-based servicing fee would better motivate substitute servicers to maximize recoveries.

Recovery Lag Is Growing In 2012-2013, improving servicers’ efficiency in foreclosure proceedings and real-estate-owned (REO) property sales will be critical to reduce recovery lags and maximize recoveries. Despite the large pipeline of 90-plus delinquencies and foreclosures that has built up since 2008, a significant pick-up in REO activity and sales has not yet occurred. A failure of recoveries on defaulted mortgages to accelerate in 2012-2013 will signal that the lag between initial default and final


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liquidation has lengthened beyond the three- to four-year timeline we previously assumed in our ratings of Mexican RMBS. Absent positive developments in this area, we will consider using more stressful recovery lag and severity assumptions when rating and monitoring Mexican RMBS.

Several factors are contributing to the longer recovery lag for defaulted mortgages. First, the judicial system, which varies from state to state, prolongs the servicer’s efforts to repossess properties. Second, the large number of loan defaults has made it difficult for servicers to keep up with volumes. Third, recently appointed substitute servicers have experienced delays in actively pursuing recoveries because they have had to take time to familiarize themselves with their new portfolios and to gather the legal documentation necessary to foreclose. Fourth, some servicers, such as INFONAVIT, often choose to exhaust other loss mitigation options, such as loan modifications, in an attempt to keep borrowers flowing immediately before pursuing foreclosure.

Chart 1 shows Mexican RMBS and the level of defaulted loans, including 90-plus delinquencies but excluding REOs, in comparison to the level of reported REOs. These transactions contain large numbers of defaulted loans but a relatively small amount of REO inventory; the difference signals that a large backlog of defaulted loans have yet to go through the full foreclosure process.

CHART 1

90+ Delinquencies and REOs in Select Mexican RMBS As of December 1, 2011

Transaction 90+ Delinquencies

(% of Current Pool) Reported REOs

(% of Current Pool)

MXMACCB 04U 37.2% 0.1% MXMACCB 06U 38.3% 1.5% BRHCCB 07U 44.1% 9.9% HSBCCB 07-3 13.7% 3.4% CREYCB 06U 37.5% 7.5% CEDEVIS 06-2U 11.3% Not Reported

Source: Monthly servicer reports.

Mexican Construction Loan Securitizations Performance will Remain Under Stress In 2012, the performance of construction loan securitizations will continue to suffer, as problems in the Mexican housing construction sector persist. They include weakened servicers, longer construction and sales cycles, weakening demand in certain markets, and reduced private-sector mortgage financing, all of which are slowing the pace of home sales.

These problems, which began to emerge in 2008-2009, increase extension risk, which is the risk that some construction loans do not fully amortize by the transaction's

final maturity date, resulting in losses to investors absent sufficient credit enhancement. The risk is most severe for transactions that have concentrations in housing developments that target the higher-end and second/vacation home sectors, where demand and mortgage financing have declined. Home prices in some regions have also softened because of decreasing demand. Although most signs point to a continued economic recovery in 2012, many Mexicans in these sectors remain doubtful and are still postponing plans to purchase new primary or second homes.

Dominant Issuers in 2012 Will Be the Quasi-Governmental Issuers, INFONAVIT and FOVISSSTE

INFONAVIT and FOVISSSTE will continue to dominate RMBS issuance in 2012. Unlike other domestic issuers, they have been able to access the securitization market frequently over the last three years because of the strong performance and credit enhancement of their transactions. In addition, their transactions have simple capital structures and waterfalls. The domestic market may also see some one-off securitizations of other assets types in 2012, such as trade receivables, vehicle loans and leases, vehicle dealer floorplans, or consumer loans.

Cross-Border Market

The credit quality of new cross-border future flow transactions will remain strong as the largest Latin American banks continue to issue diversified payment rights (DPR) transactions. DPR transactions are securitizations of future payment orders or remittances to local beneficiaries for exports or services and foreign direct investment, as well as workers’ remittances. The credit risk of these transactions aligns closely with that of the banks originating the receivables. Most of the Latin American banking systems (except for Argentina’s) have stable outlooks. In 2012, the first cross-border covered bond may come to market in Latin American. Mexican regulators are working on special regulations to allow Mexican banks to issue covered bonds backed by mortgages or infrastructure projects. Banks in other Latin American jurisdictions where the legal framework is already in place may also issue covered bonds, rather than unsecured bonds, as a way to attract more investor interest.


STRUCTURED FINANCE

Appendix 1: 2011 Review

Latin America Aggregate Issuance

Lower Aggregate Issuance Because of Decline in Mexican and Brazilian Domestic Deals

As Figures 8 and 9 show, Latin American securitizations during 2011 amounted to USD 15.08 billion, down 11% from 2011 volumes, largely because of lower issuance volumes in the domestic markets of Brazil and Mexico.

The domestic markets of Argentina, Brazil, and Mexico accounted for 94% of the volume, or USD 14.2 billion. Cross-border securitizations accounted for only 6% of the volume, or USD 875 million.

RMBS, at 30%, and consumer loans, at 15%, were the largest asset classes in the region; CLOs and CDOs constituted another 16%, and consigned loans 15%.

FIGURE 8

Annual Latin America Securitization Issuance (2004-2011)* Total Issuance: USD 15.08 Billion

*Note For 2010-2011 domestic market issuance, only Argentina, Brazil and Mexico are included. Source: Moody’s Investors Service

FIGURE 9

2011 Latin American Securitization Total issuance USD15.08 Billion

Source: Moody’s Investors Service

FIGURE 10

2011 Latin America Domestic Securitization by Country Total issuance USD14.3 billion


FIGURE 11

2011 Latin America Domestic Securitization Asset Type Total issuance USD14.3 billion


8.1

12.2

13.6

15.8 16.7

13

16.081

14.26

3.00 2.301.70

3.30 2.80

0.52 0.88 0.83

0

2

4

6

8

10

12

14

16

18

1 2 3 4 5 6 7 8

Domestic Markets Cross Border Market

Domestic Market95%

Cross Border Market5%

Argentina34%

Brazil45%

Mexico21%

RMBS30%

Consumer Loans25%

Infrastructure Finance14%

CLO9%

Future Flow5%

Trade receivables5%

Mutiseller4%

CMBS3%

Other5%


STRUCTURED FINANCE

Argentina

Very Strong Performance for All Asset Classes in 2011

Delinquency higher than 90 days in the Argentine financial system decreased moderately during 2010 and 2011, and they were at 1.35% as of September 2011. Some of the factors driving this decline in delinquency levels are:

» The labor market and economy is stronger. The unemployment rate has been decreasing since the third quarter of 2009. The unemployment rate was 7.2% as of the third quarter of 2011. Moreover, economic activity increased at 9.1% year-over-year during the second quarter of 2011.

» Both the continuous increases in borrowers’ nominal salaries to match inflation levels (between 20% and 30%), together with the fixed interest rate on loans, have been reducing the monthly debt to income ratio for borrowers.

New Record of Issuance Levels

As shown in Figure 12, securitization issuance totaled the equivalent of USD 4,894 million in 2011, which represents an increase of 5.27% relative to the same period of last year. In terms of the number of issuances, 212 transactions were issued in the market as of December 2011, compared with 196 in 2010.

During 2011, ANSES, the Argentine Social Security Agency, consolidated its position as the larger investor in the domestic market after the nationalization of the private pension funds.

During 2011, 9 large infrastructure-related transactions were placed in the market. These deals are usually sponsored or structured by the Argentine Government and purchased mainly by ANSES and government-owned banks. The amounts issued under this category totaled the equivalent of USD 2,056 million as of December 2011, compared to USD 2,355 million (9 transactions) during the same period of 2010.

Four of these deals were related with housing programs for different provinces. The rest of the deals were mainly infrastructure or energy projects.

FIGURE 12

Amounts Issued – Securitization Market Argentina

Source: Moody’s, Buenos Aires Stock Exchange, Rosario Stock Exchange.

FIGURE 13

Number of Transactions Issued – Securitization Market Argentina


FIGURE 14

Types of Securitized Assets – Securitization Market Argentina As a % of Total Amounts Issued


0

1E+09

2E+09

3E+09

4E+09

5E+09

6E+09

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Other Infrastructure

-

50.00

100.00

150.00

200.00

250.00

300.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Other Infrastructure

Personal Loans47%

Credit Cards6%

Guaranteed SMEs Loans1%

Infraestructure Finance42%

MBS1%

Others3%


STRUCTURED FINANCE

FIGURE 15

Types of Securitized Assets – Securitization Market Argentina As a % of the Number of Transaction Issued


Brazil

Lower Public FIDC Issuance Levels; Public MBS Issuance Goes Up

As Figure 16 shows, Brazilian securitizations registered with the Brazilian regulator for public distribution during 2011 amounted to BRL 11.1 billion. The amount of private issuances in 2011 was substantial albeit no precise figures are available. Issuers registered 88 public securitizations (including FIDCs and CRIs) during 2011, compared with 94 in 2010. The lower amount issued through investment funds (FIDCs) drove the decline, although the amount of mortgage-related securitizations issued through certificates of real estate receivables (CRIs ) increased.

During 2011, RMBS and CMBS were the largest asset classes, with 34% of the amounts and 69% of the number registered; CLOs and CDOs constituted another 16%, and consigned loans 15%, of the volumes registered (Figures 17 and 18).

FIGURE 16

Brazilian Securitizations : CRIs & FIDCs, by Amount and Number

Note: Moody’s values represent new issues filed with the regulator, and do not include issues subject to restricted effort public offerings (ICVM 476). Source: Comissão de Valores Mobiliários, Moody’s Investors Service

FIGURE 17

Brazilian Domestic Securitization, 2011 Issuance, by Asset Type As a % of Total Amounts Issued


FIGURE 18

Brazilian Domestic Securitization, 2011 Issuance, by Asset Type As a % of the Number of Transaction Issued


Mexico

Lower Issuance; Stable MBS Volume

As Figure 19 shows, Mexican securitizations in 2011 amounted to USD 2.98 billion, down 26% from 2011, when two large future flow transactions drove up the volume. MBS issuance, at around USD 2.5 billion, was stable compared to 2010 volumes.

RMBS continued to dominate the Mexican domestic securitization market, accounting for 82% of all domestic securitizations. Only INFONAVIT and FOVISSSTE issued RMBS in 2011, with banks remaining on the sidelines. Trade receivables accounted for 7% of volume, consumer loans, 4%, and auto loans, 4% (Figure 20).

Personal Loans69%

Credit Cards12%

Guaranteed SMEs Loans5%

Infraestructure Finance4%

MBS1%

Others9%

0

50

100

150

200

250

0

5

10

15

20

2004 2005 2006 2007 2008 2009 2010 2011

CRI - Total Amount Issued (LHS)FIDC / FIC-FIDC/ FIDC-NP - Total Amount Issued (LHS)Number of Issues (RHS) - Consolidated

CMBS/RMBS34%

CDO/CLO16%Consigned

Loans15%

Future Flow11%

Multiseller9%

Trade Receivables8%

Other6%

Auto Loan1%

CMBS/RMBS69%

CDO/CLO2%

Consigned Loans11%

Future Flow2%

Multiseller8%

Trade Receivables5%

Other2%

Auto Loan1%


STRUCTURED FINANCE

FIGURE 19

Domestic Securitization Volume in Mexican Domestic Markets Volume (USD)


FIGURE 20

2011 Mexican Domestic Securitization Volume by Asset Type


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2004 2005 2006 2007 2008 2009 2010 2011

MBS82%

ABS9%

Accounts Receivable5%

Consumer Loans4%


STRUCTURED FINANCE

Rating List (Only Deals Rated By Moody’s)

Argentina

Closing Date Deal Name Originator Asset Type Currency

Amount (Millions)

Original NSR (Only most senior

tranche)

11-Feb-11 Fideicomiso Financiero Pvcred Serie V Pvcred S.A. Personal Loans ARS $66.96 Aaa.ar (sf) 24-Feb-11 Fideicomiso Financiero Banex Créditos XLIII Banco Supervielle S.A. Personal Loans ARS $100.00 Aaa.ar (sf) 8-Feb-11 Fideicomiso Financiero Multipyme XII SMEs Guaranteed SMEs Loans USD $1.70 Aa3.ar

3-Mar-11 Fideicomiso Financiero Plan Federal Plurianual de Construcción de Viviendas - Provincia de Chaco - Serie II

Instituto Provincial de Desarrollo Urbano y Vivienda

Infraestructure Finance ARS $80.00 A2.ar (sf)

22-Mar-11 Fideicomiso Financiero Banex Créditos XLIV Banco Supervielle S.A. Personal Loans ARS $100.00 Aaa.ar (sf)

28-Mar-11 Fideicomiso Financiero Algodón I Cooperativa Agropecuaria y otros Future Flow ARS $34.60 A2.ar (sf)

27-Apr-11 Fideicomiso Financiero Banex Créditos XLV Banco Supervielle S.A. Personal Loans ARS $100.00 Aaa.ar (sf) 4-May-11 Fideicomiso Financiero Nutrientes Serie II Profertil S.A. Trade Receivables USD $3.29 A1.ar

12-May-11 Fideicomiso Financiero Programa Federal Plurianual de Construcción de Viviendas en la Provincia de Buenos Aires

Instituto de Vivienda de la Provincia de Buenos Aires Infraestructure Finance ARS $350.00 A3.ar (sf)

16-May-11 Fideicomiso Financiero Pvcred Serie VI Pvcred S.A. Personal Loans ARS $69.20 Aaa.ar(sf) 19-May-11 Fideicomiso Financiero Banex Créditos XLVI Banco Supervielle S.A. Personal Loans ARS $100.00 Aaa.ar (sf)

19-May-11 Fideicomiso Financiero Puente Pymes III

Puente Hnos. Inversiones S.A. Guaranteed SMEs Loans USD $4.87 A3.ar

27-May-11 Fideicomiso Financiero Banex Créditos XLVII Banco Supervielle S.A. Personal Loans ARS $100.00 Aaa.ar (sf) 27-May-11 Fideicomiso Financiero Finansur Autos IV Banco Finansur S.A. Vehicle Loans ARS $31.67 Aaa.ar (sf) 29-Jun-11 Fideicomiso Financiero Banex Créditos XLVIII Banco Supervielle S.A. Personal Loans ARS $100.00 Aaa.ar (sf) 14-Jul-11 Fideicomiso Financiero Aval Rural XV SMEs Guaranteed SMEs Loans USD $9.92 A1.ar 21-Jul-11 Fideicomiso Financiero Pvcred Serie VII Pvcred S.A. Personal Loans ARS $77.76 Aaa.ar(sf) 27-Jul-11 Fideicomiso Financiero Finansur Autos V Banco Finansur S.A. Vehicle Loans ARS $31.67 Aaa.ar (sf) 3-Aug-11 Fideicomiso Financiero Supervielle Leasing VII Banco Supervielle S.A. Leasing ARS $79.31 Aaa.ar (sf) 8-Aug-11 Fideicomiso Financiero Banex Créditos XLIX Banco Supervielle S.A. Personal Loans ARS $120.00 Aaa.ar (sf) 30-Aug-11 Fideicomiso Financiero Banex Créditos L Banco Supervielle S.A. Personal Loans ARS $120.00 Aaa.ar (sf) 12-Sep-11 Fideicomiso Financiero Pvcred Serie VIII Pvcred S.A. Personal Loans ARS $78.62 Aaa.ar(sf) 22-Sep-11 Fideicomiso Financiero Banex Créditos 51 Banco Supervielle S.A. Personal Loans ARS $120.00 Aaa.ar (sf) 22-Sep-11 Fideicomiso Financiero Multipyme XIII SMEs Guaranteed SMEs Loans USD $2.99 Aa3.ar 23-Sep-11 Fideicomiso Financiero Aval Rural XVI SMEs Guaranteed SMEs Loans USD $5.42 A1.ar 25-Oct-11 Fideicomiso Financiero Banex Créditos 52 Banco Supervielle S.A. Personal Loans ARS $120.00 Aaa.ar (sf) 7-Nov-11 Fideicomiso Financiero Banex Créditos 53 Banco Supervielle S.A. Personal Loans ARS $120.00 Aaa.ar (sf) 1-Dec-11 Fideicomiso Financiero Banex Créditos 54 Banco Supervielle S.A. Personal Loans ARS $120.00 Aaa.ar (sf) 7-Dec-11 Fideicomiso Financiero Pvcred Serie IX Pvcred S.A. Personal Loans ARS $84.16 Aaa.ar(sf) (sf) 15-Dec-11 Fideicomiso Financiero Secupyme XXXVI SMEs Guaranteed SMEs Loans USD $3.36 Aa3.ar 20-Dec-11 Fideicomiso Financiero Banex Créditos 55 Banco Supervielle S.A. Personal Loans ARS $120.00 Aaa.ar (sf)


STRUCTURED FINANCE

Brazil

Closing Date Deal Name Originator Asset Type Currency Amount

(Millions) Current Rating

Global Scale Current Rating National Scale

14 Mar 11 FIDC Schahin - Crédito Consignado Banco Schahin Payroll Deducted Loans BRL $300.00 Ba1 (sf) Aa1.br (sf)

13 Apr 11 RB Capital Securitizadora - 59th Series of Certificates BR Properties MBS BRL $320.00 Ba3 (sf) A2.br (sf)

24 Aug 11 BV Financeira - FIDC II - 2nd Series (Senior Shares) BV Financeira Auto Loans BRL $100.00 Baa3 (sf) Aaa.br (sf)

24 Aug 11 BV Financeira - FIDC II - 2nd Series (Class B Subordinated Shares) BV Financeira Auto Loans BRL $1,000.00 Caa1 (sf) B3.br (sf)

25 Aug 11 FIDC CDC Financiamento de Veículos Banif Banco Banif Auto Loans BRL $70.00 Ba3 (sf) A2.br (sf) 23 Sep 11 BV Financeira - FIDC VI (Senior Shares) BV Financeira Auto Loans BRL $2,000.00 Ba3 (sf) A2.br (sf) 23 Sep 11 BV Financeira - FIDC VI (Mezzanine Shares) BV Financeira Auto Loans BRL $533.30 Caa1 (sf) B1.br (sf)

20 Dec 11 PDG Companhia Securitizadora - 15th Series of Certificates PDG Realty MBS BRL $250.00 Ba2 Aa3.br

27 Dec 11 FIDC CDC Financiamento de Veículos Credifibra Credifibra Auto Loans BRL $200.00 Ba3 (sf) A2.br (sf)

Mexico

Closing Date Deal Name Originator Asset Type Currency

Amount (Mexican Pesos

Millions) Current Rating

Global Scale Current Rating National Scale

04 Mar 2011 CEDEVIS 11U INFONAVIT (CEDEVIS) MBS Mexican Pesos 3,666 Baa1 (sf) Aaa.mx (sf) 14 Apr 2011 HITOTAL 10U HITO (Hitotal10U reopening) MBS Mexican Pesos 2,500 Baa1 (sf) Aaa.mx (sf) 03 Jun 2011 CEDEVIS 11-2U INFONAVIT (CEDEVIS) MBS Mexican Pesos 3,852 Baa1 (sf) Aaa.mx (sf) 09 Jun 2011 TFOVIS 11U FOVISSSTE (TFOVIS) MBS Mexican Pesos 3,608 Baa1 (sf) Aaa.mx (sf) 29 Jul 2011 CDVITOT 11U INFONAVIT (CEDEVIS) MBS Mexican Pesos 2,000 Baa1 (sf) Aaa.mx (sf) 22 Aug2011 TFOVIE 11U FOVISSSTE (TFOVIE - private placement) MBS Mexican Pesos 5,480 Baa1 (sf) Aaa.mx (sf) 22 Aug 2011 TFOVIS 112U FOVISSSTE (TFOVIS 11-2U) MBS Mexican Pesos 3,918 Baa1 (sf) Aaa.mx (sf) 13 Oct 2011 HITOTAL 10U HITO (Hitotal10U reopening) MBS Mexican Pesos 1,500 Baa1 (sf) Aaa.mx (sf) 21 Oct 2011 CDVITOT 11-2U INFONAVIT (CDVITOT 11-2U) MBS Mexican Pesos 104 Baa3 (sf) Aa2.mx (sf) 09 Dec 2011 CDVITOT 11-3U INFONAVIT (CEDEVIS) MBS Mexican Pesos 1,096 Baa1 (sf) Aaa.mx (sf) 15 Dec 2011 TFOVIS 11-3U FOVISSSTE (TFOVIS) MBS Mexican Pesos 4,309 Baa1 (sf) Aaa.mx (sf)


STRUCTURED FINANCE

Moody’s Related Research

For a more detailed explanation of Moody’s approach to this type of transaction as well as similar transactions please refer to the following reports:

Argentina: »

»

Provincial Stamp Tax Interpretation Affects Securitizations in Argentina; Will this View Prevail?, June 2011 (SF248183)

»

Argentine Securitization Market: 2011 Mid-Year Review & Outlook, August 2011 (SF256628)

Brazil:

Argentine Securitizations, Chastened in Past Crises, Face New Inflationary Risks, September 2011 (SF261591)

»

»

Brazilian Factoring Securitizations: Undue Credit Risk and High Loss Severities, April 2011 (SF242050)

»

Episode Points to Severity of Unprecedented Provisioning in Brazilian Securitization Market, May 2011(133250)

»

Brazil Securitization Regulations Will Increase the Likelihood of Mezzanine Defaults, August 2011 (SF256887)

Mexico:

Post Crisis, Brazilian Securitization Is Business as Usual, Subject to Increased Regulatory Oversight, September 2011 (SF261590)

»

»

Moody's Structured Finance Rating Scale, August 2010 (SF214286)

»

Moody's to Review Impact of Reporting Inconsistencies in FOVISSSTE Mexican RMBS , November 2011 (SF267515)

»

Mexican Mortgage-Backed Securities Are Simpler and Stronger Post Crisis , September 2011 (SF261589)

»

Decision to Discontinue Inflation-Indexed Mortgages Is Credit Positive for Mexican RMBS , June 2011 (SF252449)

Master Servicing Could Strengthen Securitizations in Mexico , May 2011 (SF246727)

» Revisión del Desempeño de Transacciones RMBS en México, January 2011 (SF233523)

Moody’s publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

http://www.moodys.com/research/Provincial-Stamp-Tax-Interpretation-Affects-Securitizations-in-Argentina-Will-this--PBS_SF248183�

http://www.moodys.com/research/Argentine-Securitization-Market-2011-Mid-Year-Review-Outlook--PBS_SF256628�

http://www.moodys.com/research/Argentine-Securitizations-Chastened-in-Past-Crises-Face-New-Inflationary-Risks--PBS_SF261591�

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF242050�

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_133250�




http://www.moodys.com/research/Moodys-Structured-Finance-Rating-Scale--PBS_SF214286�

http://www.moodys.com/research/Moodys-to-Review-Impact-of-Reporting-Inconsistencies-in-FOVISSSTE-Mexican--PBS_SF267515�

http://www.moodys.com/research/Mexican-Mortgage-Backed-Securities-Are-Simpler-and-Stronger-Post-Crisis--PBS_SF261589�

http://www.moodys.com/research/Decision-to-Discontinue-Inflation-Indexed-Mortgages-Is-Credit-Positive-for--PBS_SF252449�

http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF246727�

http://moodys.com/viewresearchdoc.aspx?docid=PBS_SF233523�



STRUCTURED FINANCE

1 “Personal loans” are general-purpose consumer loans and include payroll-deduction consumer loans (crédito consignado). 2 These are typically point-of-sale loans for the purchase of consumer durables or white appliances. 3 Instituto del Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT) is a socially oriented institution created in 1972 with two missions: 1) to provide

mortgage financing to formal-economy, salaried workers in the Mexican private sector, and 2) to manage the retirement pension funds funded with employers’ contributions.

4 Fondo de Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (FOVISSSTE) is a socially oriented, self-funded decentralized institution created in 1972 to provide housing financing to public sector employees.

5 According to Softec’s Mexican Housing Overview 2009 Report. 6 Please see Moody’s “Decision to Discontinue Inflation-Indexed Mortgages Is Credit Positive for Mexican RMBS”, 13 June 2011. 7 Sofoles (Sociedad Financiera de Objeto Limitado) and Sofomes (Sociedad Financiera de Objeto Múltiple) are non-bank financial institutions operating in Mexico and

engaged in mortgage and construction lending.

http://www.moodys.com/research/Decision-to-Discontinue-Inflation-Indexed-Mortgages-Is-Credit-Positive-for--PBS_SF252449�


STRUCTURED FINANCE

» contacts continued from page 1

MOODY'S CLIENT SERVICES: New York: 1.212.553.1653 Tokyo: 81.3.5408.4100 London: 44.20.7772.5454 Hong Kong: 852.3551.3077 Sydney: 612.9270.8100 Singapore: 65.6398.8308 Website: www.moodys.com

ADDITIONAL CONTACTS: Linda Stesney Managing Director 1.212.553.3691 [email protected]

María Muller Senior Vice President 1.212.553.4309 [email protected]

Report Number: SF274146

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