Ratings

Despite the identified shortcomings, Standard & Poor's recognizes that Crédito y Casa is working to overcome them and does not expect further deterioration. Standard & Poor's will follow the company's servicing performance closely for stabilizing portfolio indicators and reporting capabilities.

Crédito y Casa has an experienced management team and an adequate organizational structure. The sofol is organized under eight functional areas that report directly to the managing director. There is also an auditing department and a finance vice president. The functional areas are:

• Operations;
• Origination;
• Servicing;
• IT;
• Staff development;
• Finance and administration;
• Funding; and
• Planning.

Staff has been growing for the past years, even with the implementation of the ABANKS system. As of June 2005, the company had a total of 1,025 employees. Turnover ratio has been approximately 20% annualized until July 2005 due to the use of external temporary employees in the past. This practice is no longer in use. Standard & Poor's considers the 20% turnover rate to be too high and believes the turnover may have affected the servicing operation. Since the practice is no longer in use, Standard & Poor's expects the turnover rate to decrease in the future.

Crédito y Casa operates with well-documented policies and procedures that cover all servicing aspects. Manuals are available in the company's intranet. The company began reviewing its process and procedures in order to obtain Sarbanes-Oxley (SOX) compliance certification. Currently, the sofol does not need this certification, but is still pursuing it to gather important feedback from the process. The company stated that its manuals are updated regularly, at least once per year; however, Standard & Poor's identified some cases in which the last review took place more than 18 months ago.

Crédito y Casa has been updating its hardware according to the growing computational requirements that ABANKS has brought. The company is currently implementing the COLLECTOR module, which should help with servicing tasks. The sofol's servicing operations are adequately automated. Its servicing system works with a central database, which has been integrated over the past couple of years. Just recently, the company finished migrating its historic data to the ABANKS system. The extensive amount of time it took to migrate this information highlights the difficulties the company faced trying to implement ABANKS, which can also been seen as it moves to implement the COLLECTOR module. The enormous resources dedicated to this purpose has affected the reporting capabilities, which have not been sufficient for a servicer with an ABOVE AVERAGE ranking. Even if the company has gained efficiencies in certain tasks because of new technological implementations, the company's delinquency and nonperforming loans statistics have yet to show similar improvements.

The information technology (IT) department employs 64 people. IT is responsible for all hardware, software, and user support. Crédito y Casa maintains solid technological implementation and has updated hardware and software to support its operation. Its main site is located at its headquarters in Culiacán, and has adequate fire protection, access restriction, and security measures. All of the company's offices are online with the servicing system, which is also connected to the credit bureau and housing agencies' systems.

The company has documented disaster recovery and business continuity plans. Crédito y Casa is switching its backup server to Triara's facilities in Monterrey. When this change occurs, the servers will be updated to the new computational requirement the company now has, and all critical information will be mirrored in real time. IT staff performs daily, weekly, and monthly backups of all critical information and systems on disk and tapes. Weekly tapes for the last four weeks are kept in a bank vault, while daily and monthly tapes are kept at the company's headquarters.

Standard & Poor's notes that Crédito y Casa's contingency manual has not been updated to reflect the fact that the company changed its servicing system. Additionally, the contingency plan has not been tested since year-end 2003. Standard & Poor's requires that the DRP and BCP be updated and that the company test these plans on an annual basis with satisfactory results in order for Crédito y Casa to maintain its ranking.

Crédito y Casa's human resources functions are performed by the development area. This area, which employs 11 people, coordinates all training activities and tracks each employee's career development. Training includes general industry and company courses as well as area-specific programs. Programs available include English language, computing skills, and training for the ABANKS system, among others. Each employee receives an average of more than 20.5 hours of training each year.

Crédito y Casa has a 14-person internal auditing department that reports directly to an auditing committee, the board of directors, and the company's CEO. This department reviews financial statements and ensures that all operations are done according to policies and procedures. The information gathered is used to measure efficiencies in different stages of the origination and servicing process, and to target areas of opportunity. There is no formal schedule for the internal audits, but they are performed continuously during each year.

Litigation and insurance coverage

The sofol has a legal area with extensive experience in the banking and housing industries. The legal department has 12 internal lawyers who coordinate collections that are in judicial status (accounts that are more than 120 days past due and warrant legal action). The company stated it is not currently facing any material litigation.

Crédito y Casa receives 85% of payments at its offices and collection modules. Nearly all of the rest are received by HSBC, Banamex, and BBVA Bancomer bank branches. Less than 1% is received through other mechanisms like automatic charges to checking accounts or charges through convenience stores. Payments are received from Monday through Saturday during normal business hours. The sofol's visiting agents perform collection functions and, if necessary, accept cash payments during their visits. Payments received at the company's branches or modules are handled with adequate security measures, including alarms, safe deposit boxes, and an automatic system notification for transferring cash into the vault when the funds total MxP35,000. The money is transported by an armored service regularly. Standard & Poor's recommends the use of surveillance cameras and bulletproof glass to improve safety measures at its branches.

The company has electronic access to all payment information and balances are reconciled daily. Standard & Poor's believes the company's cash processing is adequately controlled and expects to see enhanced reporting capabilities once the COLLECTOR module is in full function (as part of the business intelligence plan).

All loans have standard hazard and life insurance. Insurance premiums are factored into monthly payments. In the event a borrower becomes delinquent, Crédito y Casa maintains insurance protection by continuing to advance the premium payments to the insurer. Standard & Poor's believes that insurance management is adequate for the ranking level.

Crédito y Casa's customer service activities are performed through:

• Telephone: The sofol has a very good call center in Culiacán with 40 representatives;
• Internet: The company has a good Web site that includes chat and E-mail functionality; and
• Representative: Customer servicer is available in person, at all of the branches.

The company's Web site has all relevant contact information, mortgage calculators, and balance information. The sofol has a highly automated call center, which integrates a predictive calling system and an interactive voice response unit. It operates on weekdays between 8:00 a.m. and 8:00 p.m. and Saturdays between 9:00 a.m. and 2:00 p.m. Standard & Poor's believes Crédito y Casa employs good customer service practices and expects that utilizing themwill have a positive impact on the portfolio's performance indicators.

Crédito y Casa has invested significant resources and time toward implementing its servicing system, and is still enhancing it through the integration of the COLLECTOR module. The system has not yet allowed the company to reach the performance levels of other similarly ranked mortgage sofoles. However, Standard & Poor's expects to begin seeing results in the near future. The company's collection efforts are divided as follows:

• Preventive: Clients who have been late payers in the past six months receive a reminding call before their mortgage payments are past due.
• Administrative and extra-judicial: Loans between one day and 120 days past due fall into this collection stage. In addition to more frequent and more stern phone calls, a visiting agent personally reminds the client of due payments. This agent carries a notepad, calculator, and receipts in case a client wants to make payment in that moment.
• Judicial: For accounts that are more than 120 days past due. Crédito y Casa works with external law firms located in each region.

The sofol is currently conducting a thorough analysis of its REO portfolio. This examination includes looking at the time the process takes and the costs associated with it, with the goal of improving these areas. Since 2003, 54 properties have been repossessed and then effectively resold. Standard & Poor's believes Crédito y Casa has fair collection and default management processes, and expects the nonperforming and delinquency indicators to improve in the near future.

As of June 2005, Crédito y Casa's serviced portfolio (including off-balance loans) showed the following characteristics:

Table 2 Construction Bridge Loans
Credit Portfolio	June 2005		December 2004		December 2003		December 2002		December 2001
(MxP000)	3,592,535		3,958,899		4,336,390		2,981,849		1,038,996
	No.	%	No.	%	No.	%	No.	%	No.	%
Performing	548	87.8	597	82.0	837	99.9	703	99.9	255	100.0
1-30 days	17	2.7	70	9.6	1	0.1	0	0.0	0	0.0
31-60 days	12	1.9	21	2.9	0	0.0	0	0.0	0	0.0
61-90 days	11	1.8	8	1.1	0	0.0	0	0.0	0	0.0
More than 90 days	36	5.8	32	4.4	0	0.0	1	0.1	0	0.0
Total	624	100.0	728	100.0	838	100.0	704	100.0	255	100.0
Nonperforming	40	6.4	99	13.6	1	0.1	-	0.0	-	0.0
Total Delinquency*	36	5.8	32	4.4	-	0.0	1	0.1	-	0.0
*Under Comisión Nacional Bancaria y de Valores (CNBV) regulatory standards, delinquency is measured by taking loans with more than 90 days past due into account. Before year-end 2003, however, this standard was of 120 days.

Table 3 Individual Mortgage Loans
Credit Portfolio	June 2005		December 2004		December 2003		December 2002		December 2001
(MxP000)	16,775,360		15,663,390		10,322,942		7,964,184		6,224,335
	No.	%	No.	%	No.	%	No.	%	No.	%
Performing	58,806	72.6	59,215	75.4	49,745	80.4	31,856	59.8	14,233	73.8
1-30 days	10,147	12.5	8,163	10.4	5,183	8.4	12,868	24.2	1,899	9.8
31-60 days	4,368	5.4	5,103	6.5	3,615	5.8	3,595	6.8	1,000	5.2
61-90 days	4,096	5.1	2,975	3.8	631	1.0	1,561	2.9	485	2.5
More than 90 days	3,605	4.4	3,071	3.9	2,674	4.3	3,366	6.3	1,663	8.6
Total	81,022	100.0	78,527	100.0	61,848	100.0	53,246	100.0	19,280	100.0
Nonperforming	18,611	23.0	16,241	20.7	9,429	15.2	18,024	33.9	3,384	17.6
Total Delinquency*	3,605	4.4	3,071	3.9	2,674	4.3	3,366	6.3	1,663	8.6
*Under Comisión Nacional Bancaria y de Valores (CNBV) regulatory standards, delinquency is measured by taking loans with more than 90 days past due into account. Before year-end 2003, however, this standard was of 120 days.