We noted that some banks are launching mortgage products in the single-digit interest rate range. Currently, four of the largest Mexican banks offer mortgage loans with single-digit interest rates. Banxico (
High CPRs could have a negative impact on RMBS as a declining number of performing borrowers reduces excess spread (XS) which could be used to insulate against future losses from borrower delinquencies. The timing of these events would dictate the overall impact. If losses are back-loaded and XS is released during the early life of the transaction, credit protection could be lower than anticipated when losses appear.
While 'AAA(mex)' bank-sponsored RMBS are not isolated from risks associated with growing CPRs, they are well positioned against rising CPRs given their positive overcollateralization and XS levels as well as consistent stability in asset quality metrics. Fitch considers current CPR trends in its analysis and model assumptions consider stresses significantly above expectations. All 'AAA(mex)' rating were recently affirmed.
Mortgage loans are an important component of commercial banks' balance sheet. According to data from CNBV, they account for 17.4% of total lending portfolio (up from 16.6% since
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Source: Fitch Ratings
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