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2/28, 2nd Lien Performance Worsens

Fitch downgrades $2.4 billion in subprime RMBS from 2005, 2006

August 1, 2007

By MortgageDaily.com staff

Ratings on $2.4 billion in subprime residential mortgage-backed securities were downgraded today. The actions reflect the particularly poor performance of 2/28 adjustable-rate mortgages and loans with junior liens.

Fitch Ratings announced Wednesday the actions on 150 vintage 2006 and 2005 RMBS classes.

The downgrades were the first in a series of planned actions on 170 transactions as a result of recent adjustments to the agency's surveillance methodology announced in July, today's statement said. The BBB-rated classes from the 170 deals were deemed to be most distressed while the classes downgraded today were "some of the most poorly performing deals from that list."

Among the factors the ratings agency said it is most concerned with are home price declines, mortgages with high loan-to-values and loans with reduced income verification. Also of concern is the poor performance of 2/28 adjustable-rate mortgages and loans with subordinate liens.

"Very poor performance by second lien mortgages has led to early and substantial downgrades of second-lien securitizations," Fitch said. "Similarly, the presence of second-liens which are defaulting rapidly and with very high loss severity, is having, and in Fitch's opinion will continue to have, a substantial negative impact on the performance of RMBS backed by mixed pools of first- and second-liens."

Shortly after Fitch's announcement, Moody's Investors Service placed certificates from 10 second lien subprime transactions issued this year on review for possible downgrade. Affected classes include issuances from ASL1, American Home Mortgage Investment Trust, Bear Stearns Mortgage Funding Trust, C-Bass Mortgage Loan Asset-Backed Certificates, GreenPoint Mortgage Funding Trust, Nomura Asset Acceptance Corp., SACO I Trust and Terwin Mortgage Trust.

"These deals' projected pipeline losses had significantly increased over the past few months, likely affecting the credit support for these certificates," Moody's said. "The certificates have been placed on review for possible downgrade because their current credit enhancement levels, including excess spread, may be too low compared to the current projected losses."

In addition to Fitch's downgrades, more than 230 classes for $20 billion were affirmed, the agency reported.

"Securitizations from 2005 and 2006 are experiencing very high levels of delinquency and default, due to the interaction of an unfavorable home price environment with high-risk mortgage products," the announcement said. "Fitch's methodology is designed to recognize the particular risks and performance profile of each security under analysis, and to provide a forward-looking forecast of mortgage default and loss."


Fitch Joins Downgrade Party
Just days following similar moves by the other two ratings agencies, Fitch Ratings warned investors it may lower the ratings of 170 subprime residential mortgage-backed securities. Meanwhile, another agency acted on its warnings.

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