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RATING DRIVERS

Supporting Factors

• Simple transaction structure, with effective credit enhancement built-in
• Legal and regulatory framework supporting the transaction provides adequate protection to investors
• Good credit quality of the securitised loans in the mortgage pool, notwithstanding some deterioration as expected
• Sound underwriting practices of TTMF, the originator of the mortgages within the pool

Constraining Factor

• Mortgage pool seasoning along with a challenging economic environment could increase default risk

Rating Sensitivity Factors

Factors that could, individually, or collectively lead to an improvement in the ratings and/or outlook include:

• An improvement in the loan portfolio quality, with an NPL ratio of lower than 5% and/or a return to delinquency levels of 2% – 4% within the underlying mortgage pool over the next 12-15 months

Factors that could, individually, or collectively lead to a lowering of the ratings and/or outlook include:

• Persistent delinquency levels of above 20% and/or NPL ratio of above 8% within the underlying mortgage pool leading to heightened extension and/or default risk over the next 12-15 months
• Deterioration in TTMF’s NPLs to Gross loans ratio of above 10.5% sustained for 2 financial periods

BACKGROUND

CMO 2019-01 is a structured finance debt instrument issued by the Home Mortgage Bank (HMB or The Bank) to securitise residential mortgage assets purchased from the Trinidad & Tobago Mortgage Finance Company Limited (TTMF or the Company) on the secondary market. CMO 2019-01 offers participation certificates in 9 tranches in the amount of TT $200 million as follows:

1. Series A – TT $25.0 million with an average life of 0.54 years at an initial coupon rate of 2.05%
2. Series B – TT $25.0 million with an average life of 1.71 years at an initial coupon rate of 3.05%
3. Series C – TT $25.0 million with an average life of 2.90 years at an initial coupon rate of 3.70%
4. Series D – TT $25.0 million with an average life of 4.09 years at an initial coupon rate of 4.05%
5. Series E – TT $25.0 million with an average life of 5.35 years at an initial coupon rate of 4.75%

6. Series F – TT $25.0 million with an average life of 6.72 years at an initial coupon rate of 5.20%

1. Series G – TT $25.0 million with an average life of 8.24 years at an initial coupon rate of 5.30%
2. Series H – TT $12.5 million with an average life of 9.77 years at an initial coupon rate of 5.65%
3. Series I – TT $12.5 million with an average life of 11.49 years at an initial coupon rate of 5.75%

The collateralised assets are held in Trust by TTMF and governed by the laws of the Republic of Trinidad & Tobago and established by a Declaration of Trust. The investment security has monthly coupon payments that are payable to all certificate holders and the principal for each tranche available for distribution (Series A to I) are being paid sequentially as the underlying mortgages are repaid. Thus, Series A was fully repaid before principal repayment started on Series B and so on. Certificates are structured to enable investors to participate in the acquisition and ownership of a pool of residential mortgages. Each Certificate represents an undivided beneficial ownership interest in the Mortgage Pool. The Bank has also issued 2 Tranches, T and R, that will not be available for distribution^[1]. As at the date of this report, Tranche A and B has been fully repaid^[2].

The distribution of CMO Certificates represents a diversification of the Bank’s funding tools, generating liquidity while managing the Bank’s gearing position^[3]. The purpose of the CMO, therefore, is to provide funding to HMB to acquire mortgage loans on the secondary market from Approved Mortgage Lenders and to meet the Bank’s corporate financing needs.

HMB, as Issuer of the security, has engaged TTMF as the Trustee and Administrator for the transaction. The Bank also performs the roles of Registrar and Paying Agent. The Issuer, HMB, is a related party to the Trustee and Administrator, TTMF, as both entities are subsidiaries of the National Insurance Board of Trinidad and Tobago (NIBTT). The appointed legal advisor for the transaction is the law firm of Pollonais, Blanc, de la Bastide & Jacelon.

This represented the third CMO issued by HMB, with the previous two successfully issued in 1999 and 2000 respectively. Subsequently, the bank issued a fourth CMO (CMO 2020-01) in March 2020^[4].

^[1] These are represented via Certificates issued to HMB by the Trustee on transfer of the Mortgage Pool.  Tranche T represents an interest only Tranche with a notional principal amount equivalent to 0.25% per annum paid monthly on the Aggregate Unpaid Principal Balance. It is structured to meet the Trust’s obligations to its Trustee at the end of each Due Period.  Tranche R is payable to HMB and will be utilised as part of its general working capital cash flows.  It represents monthly surplus receipts from the Mortgage Pool after payment to all Certificate Holders and the Trustee.  Surplus receipts are derived from the interest rate differential between the Mortgage Pool Rate and the interest rate payable on the Certificates and the principal and interest payments from the over-collateralisation of the Mortgage Pool.

Analytical Contacts:

Nadia Sanchez

Tel: 1-868-627-8879 Ext. 229

E-mail: nsanchez@caricris.com

Anelia Oudit

Tel: 1-868-627-8879 Ext. 226

Mobile: 1-868-487-8364

E-mail: aoudit@caricris.com

Website: www.caricris.com

E-mail: info@caricris.com

Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable.  However, CariCRIS does not guarantee the accuracy,adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.  No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval.  CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product.

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