Fitch Rates the First RMBS from El Salvador; New Securitization Law Passed.

SAN JOSE, Costa Rica & CHICAGO -- On March 10, Fitch assigned a national rating of 'AA+(pan)' to the series A notes issued by the 'Ninth Mortgage Backed Bonds Trust' (NMBBT) (Panamanian Trust). The transaction represented the first residential mortgage backed securitization (RMBS) ever completed for the capital markets originated from El Salvador. The transaction is also noteworthy because despite being an El Salvador originator, a majority of the issuance was placed with Panamanian investors.

The rating on the series A notes is based on the following:

--The initial level of subordination provided by the series B notes, which is equal to 25% of the collateral balance;

--The expected recovery in the event of a homeowner default through the legal foreclosure process;

--The transaction's cash flow and priority of payment waterfall as defined by the legal structure;

--The strength of La Hipotecaria, S.A. de C.V. (La Hipotecaria) as originator and servicer.

The collateral consists of 609 mortgage loans, denominated in dollars (October 2007 balance: US$13.26 million), originated by La Hipotecaria. On a weighted-average (WA) basis, the portfolio has an original loan-to-value ratio (LTV) of 86.11% and a current LTV of 83.37%. The portfolio is predominantly exposed to San Salvador, and about 24% of this portfolio is public-employee loans. The seasoning of the portfolio is 24 months with a WA remaining term of 314 months.

NMBBT has issued bonds in Panama (US$12.5 millions) in two series: series A notes (US$9.375 millions) and the subordinated series B notes (US$3.125 millions).

La Hipotecaria is a non-banking financial institution domiciled in El Salvador. The entity is specialized in the origination, servicing and securitization of mortgage loans, and is 100% owned by La Hipotecaria (Holding), Inc. and Subsidiaries. Given its expertise in Panama, through the Panamanian institution La Hipotecaria, S.A., La Hipotecaria attends the middle and middle/low housing sectors.

The transaction was placed in Panama over El Salvador for several reasons. La Hipotecaria's familiarity with Panama legal environment and investor community made for a less complicated execution. At the time of the bond's structuring, El Salvador's new securitization law had not yet been enacted. This transaction was set up with a Panamanian Trust, under Panama's trust law, as a more efficient alternative. Placement was also well received given La Hipotecaria's recognized name as a repeat issuer in the Panamanian markets.

However, late in 2007 El Salvador successfully passed the 'Ley de Titularizacion de Activos' which establishes the new legal framework specific for securitization. The enactment of a formal securitization law for El Salvador is expected to facilitate the growth of local and international asset backed issuance from the country. Execution strategies riding the coattails of foreign jurisdictions and investor bases, such as those employed by La Hipotecaria, should be less appropriate going forward.

The new law's most relevant introduction is the ability to issue bonds using special purpose vehicle (SPV) structures without incurring materially negative tax consequences. Prior to the law's establishment SPV's did not exist. Issuers of bankruptcy remote asset backed bonds had to be set up as independent Sociedad Anonimas (S.A.s), which is the equivalent to an independent corporation. As corporations, securitizations were not exempt from income taxes. The establishment of SPVs under the new law eliminates related tax expenses. Fitch believes this is an encouraging step for what otherwise is a nascent, yet maturing market.

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