An accurate picture of an upcoming RMBS from Mexican housing agency Infonavit is coming into focus, based on information gleaned from a prospectus and from sources involved with the deal. In key features, it will differ from the market's first RMBS, originated by Su Casita and GMAC Hipotecaria and led by Credit Suisse First Boston.

As previously reported, the deal will amount to Ps1bn (US$89 million) and the joint leads are UBS and BBVA Bancomer (see ASR 1/26, p. 24). A subordinated tranche will account for about 18% of the total; the final figure has yet to be fixed, said one source close to the deal. The originator is going for a triple-A' rating from the agencies understood to be assessing the deal: Standard & Poor's and Fitch Ratings. The originator chose a different path than Su Casita and GMAC, which used a liquidity facility from Dutch bank the FMO and a much smaller subordination of 3% from residual certificates, among other enhancements (see ASR 12/8, p.1).

Both deals count on excess spread to bolster their creditworthiness, but apparently the Infonavit transaction will use the surplus flow a little differently in order to avoid an accelerated amortization of the senior shares, according to one source. The maximum amortization is capped to ensure a minimum seven-year final maturity. If the excess speeds up the deal too much, it will go into a reserve fund. While the Su Casita/GMAC transaction had a final legal maturity of 16 years, its expected life is 5.7 years.

Infonavit is an agency that lends to low-income homeowners. In a standard mortgage, it deducts 25% of a worker's salary for payment. The employer puts in another 5%. In order to take out an Infonavit loan, a worker must make at least 4x the minimum wage index, which is currently at Ps1,375 (US$123) a month. Infonavit loans are denominated in this index, which tends to move loosely in tandem with inflation. This means that the balance of the underlying collateral in the upcoming deal will adjust periodically as well. The denomination of the notes, however, will be in fixed-rate pesos, another departure from the Su Casita/GMAC transaction, which was denominated in inflation-indexed units (Udis).

The average weighted yield on the Infonavit pool is 7.78% over the wage index. No loan selected has been delinquent for more than 60 days in the two years up to the cut-off date. Some 87% of the loans in the pool have between 100,000 and 299,000 of pesos outstanding.

The geographic distribution of the loans holds special weight in Mexico, as some states have not instituted changes to the civil law governing mortgage origination and transference. Only those that have done so were eligible, sources said. According to the prospectus, the state of Nuevo Leon in the Northeast has yielded 36% of the loans in the pool. The State of Mexico came second, with a 16% share.

Infonavit is the servicer on the transaction. The agency has been using Advance Loan System in servicing its mortgages, developed by Fidelity Information Services in the U.S.

S&P rates Infonavit BBB-' in foreign currency, on par with the sovereign. The agency is by far the largest mortgage originator in the country, having funded 62% of the houses built in the first half of 2003, according to an S&P report. The quality of the pool in the deal apparently exceeds that of Infonavit's overall portfolio. Non-performing loans hit 14% at the end of the first quarter of 2003. Reserves however are kept high to balance out this risk.

The GMAC/Su Casita and Infonavit deals share one telling feature: both have foreign leads with no prior experience in structuring or selling a peso transaction. Like CSFB before it, UBS is a greenhorn. The agency apparently picked UBS because of its experience in managing RMBS elsewhere.

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