Alt-A, 2nd Lien Ratings Hammered

But first, LaSalle Bank National Association’s residential master servicer rating was upgraded to SQ3+ from SQ3 by Moody’s Investors Service based on LaSalle’s above average reporting and remittance processes, above average compliance and monitoring capabilities and average servicing stability.

Standard & Poor’s Ratings Services announced yesterday that it lowered ratings on 184 classes for around $13.1 billion from 27 RMBS transactions backed by closed-end second-lien mortgage collateral and issued in 2007. The ratings agency also downgraded five classes from four deals because of downgrades to respective bond insurers.

S&P explained that second lien RMBS deals from 2007 are performing poorly and experiencing increased loss rates and eroding credit support. The downgraded deals have total delinquency of 11.9 percent as of March, while cumulative charge-offs have increased to 6.3 percent from 2.5 percent in December.

“Standard & Poor’s is taking these actions because it believes that losses on U.S. RMBS backed by closed-end second-lien collateral issued in the time period referenced above will significantly exceed historical precedent and because recent performance data indicates that performance is likely to be worse than previously anticipated,” S&P stated. “We believe that this poor performance results from a combination of factors including, but not limited to, an environment of looser underwriting standards; pressure on home prices; speculative borrowing behavior; risk layering (the combination of several risk elements for one single borrower); high CLTVs; financial pressure on borrowers resulting from payment increases on first-lien mortgages; and questionable data quality. Furthermore, in the past, when borrowers had difficulty managing their mortgage payments, they were more readily able to refinance.”

Higher-than-anticipated rates of delinquency, foreclosure, and REO in the underlying collateral relative to credit enhancement levels prompted Moody’s to downgrade the following Alt-A transactions:

• 100 tranches from 14 CSFB deals from 2005 through 2007;
• 98 tranches from 18 Bear Stearns RMBS from 2005, 2006 and 2007;
• 50 tranches from 10 MASTR transactions issued from 2005 through 2007;
• 46 tranches from 10 CSMC Mortgage-Backed Trust RMBS issued in 2006 and 2007;
• 35 tranches from five CSAB Mortgage-Backed Trust deals issued in 2006 and 2007;
• 20 tranches from five American Home Mortgage deals from 2005 and 2007;
• 15 tranches from Wachovia Mortgage Loan Trust, series 2006-ALT1 and 2006-AMN1;
• 12 tranches from two MortgageIT issuances in 2006 and 2007;
• 10 tranches from New Century Alternative Mortgage Loan Trust, series 2006-ALT1 and 2006-ALT2;
• nine tranches from Soundview Home Loan Trust 2006-WF1;
• seven tranches from HSI Asset Loan Obligation Trust, series 2006-2 and 2007-WF1;
• six tranches from Wells Fargo Alternative Loan 2005-2 Trust;
• three tranches from HomeBanc Mortgage Trust 2007-1; and
• two tranches from GreenPoint Mortgage Funding Trust 2005-HY1.

Fitch Ratings cited risks facing first loss and junior rated bonds within the capital structure of CMBS transactions that have increased with expectations of a rise in commercial real estate defaults in its downgrade of the following classes:

• three classes for $508 million of ACT 2005-RR Depositor Corp. series 2005-RR, CMBS pass-through certificates;
• 10 classes for $397 million from G-Force CDO 2006-1, Ltd./Corp.;
• 11 classes for $323 million of ARCap 2006-RR7 Resecuritization, Inc. CMBS pass-through certificates;
• 11 classes for $273 million from G-FORCE 2005-RR2 LLC, CMBS pass-through certificates;
• 15 classes for $216 million of ARCap 2005-RR5 Resecuritization, Inc., CMBS pass-through certificates;
• three classes for $125 million of collateralized-debt obligation Anthracite 2005-HY2, Ltd./Corp.;
• seven classes for $84 million from Crystal River Resecuritization CDO 2006-1, Ltd. /LLC; and
• one class for $27 million of LNR CDO III, Ltd./Corp.

Moody’s upgraded eight classes for $76 million of J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-FL1.

CT CDO III Ltd./Corp. saw two classes for $43 million upgraded by Fitch due to the current credit enhancement to the rated classes in relation to the improved credit quality of the remaining collateral.

A $39 million class of Morgan Stanley Dean Witter Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series 2003-HQ2 was upgraded by Moody’s due to defeasance and increased credit support.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: mtgsam@aol.com