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No Shortage of MBS Downgrades

Recent MBS ratings activity

May 28, 2008

By SAM GARCIA


Recent upgrades to mortgage-backed securities were scarce, but there was no shortage of downgrades. Deteriorating financials resulted in downgraded servicer ratings for Residential Capital LLC.

ResCap's residential primary servicer ratings for prime and Alt-A product as well as its primary specialty-subservicer rating was downgraded to RPS3 from RPS2+ by Fitch Ratings. Its primary servicer rating for subprime, high loan-to-value product, home-equity loan and home-equity lines-of-credit was downgraded to RPS3- from RPS2. ResCap's special servicer rating was downgraded to RSS3- from RSS2+, while its master servicer rating was downgraded to RMS3- from RMS2+.

Fitch cited ResCap's weakening financial condition in the downgrade and noted the actions reflect the continued pressure on ResCap's liquidity position and financial flexibility and the potential impact on the company's servicing operations.

Fitch said ResCap serviced 3.28 million loans for $458 billion as of March 31 excluding real estate owned properties, though the Minneapolis-based lender reported a domestic mortgage servicing portfolio of $416.2 billion as of March 31 in its first-quarter financial statements.

Nine subprime residential MBS from 2005 saw 59 classes downgraded by Standard & Poor's Ratings Services, reflecting adverse collateral performance that has caused monthly losses to exceed monthly excess interest. The deals were issued by Ace Securities Corp. Home Equity Loan Trust, Specialty Underwriting and Residential Finance Trust, FBR Securitization Trust and GE-WMC.

Five subprime transactions issued in 2004 and 2005 by Fieldstone Mortgage Investment Trust, Meritage Mortgage Loan Trust and Securitized Asset Backed Receivables LLC Trust saw 17 classes lowered by S&P. The actions reflect reduced credit enhancement due to monthly realized losses, as well as a high amount of loans that are considered severely delinquent. The increasing amount of loans that are severely delinquent suggests that losses will continue to exceed excess interest and further compromise credit support.

One class of WMC Mortgage Loan Trust 1997-2 was upgraded by S&P.

S&P downgraded 58 classes from 14 First Franklin Mortgage Loan Trust transactions issued in 2003 and 2005 because of sizable loan amounts that are severely delinquent. In addition, realized losses have been accelerating over the past year, exceeding available excess interest and reducing overcollateralization.

Five classes of SACO I Trust 2005-10 and Ownit Mortgage Trust 2006-OT1 were lowered by S&P because adverse collateral performance has caused monthly losses to exceed monthly excess interest.

S&P lowered its ratings on the class M-2 and M-3 asset-backed pass-through certificates from Ameriquest Mortgage Securities Inc.'s series 2003-2, reflecting collateral performance that continues to erode available credit support. The agency also cut ratings on four classes of Amortizing Residential Collateral Trust's series 2002-BC9.

Three classes of Residential Asset Securitization Trust 2006-A13 and three senior support classes from RALI Series 2006-QO7 saw ratings lowered by S&P, reflecting inadequate credit support based on projected losses. Four classes from MASTR Asset Backed Securities Trust 2006-HE1, 2006-HE3, 2006-WMC3 and 2006-WMC4 also saw ratings cut by the agency, as did two classes of HSI Asset Securitization Corp. Trust 2006-WMC1.

S&P downgraded 95 classes from 78 second lien transactions from 2005, 2006 and 2007 because the deteriorating performance of the collateral pools as monthly net losses continue to significantly outpace monthly excess interest cash flows, resulting in the complete write-down of the overcollateralization.

The mezzanine and subordinate bonds of the following Alternative-A transactions were downgraded by Fitch because of expected default and loss from delinquent loans in addition to projected losses from the currently performing pool:

  • Morgan Stanley Mortgage Loan Trust, series 2005-3AR, 2006-5AR, 2007-14AR Group 1, 2007-15AR Group 1 and 2007-15AR Group 2;
  • HSI Asset Loan Obligation Trust, series 2007-1, 2007-AR1 and 2007-AR2;
  • Washington Mutual Mortgage, WMALT, series 2005-1, 2005-2, 2006-2 and 2006-3;
  • GSAA Home Equity Trust, series 2005-5, 2007-9 and 2007-10;
  • MASTR Alternative Loan Trust 2005-1 and MASTR Adjustable Rate Mortgages Trust 2006-OA2;
  • GSC Capital Corp. Mortgage Trust, series 2006-1 and 2006-2; and
  • WaMu Mortgage Pass-Through Certificates, series 2007.

S&P cut ratings on 28 classes of mortgage pass-through certificates from 12 Alt-A RMBS issued in 2004 and 2005 by Bear Stearns ALT-A Trust, Credit Suisse First Boston Mortgage Securities Corp., CSFB Mortgage-Backed Trust, First Horizon Alternative Mortgage Pass-Through Trust and First Horizon Alternative Mortgage Securities Trust.

"The lowered ratings reflect current or projected credit enhancement levels that are not sufficient to support the certificates at the previous rating levels as of the April 2008 remittance period," S&P stated. "Based on the current collateral performance of these transactions, future credit enhancement is projected to be significantly less than the original credit support. We have reviewed all of the affected transactions within the past 12 months, and they continue to perform adversely."

S&P lowered ratings on 93 classes of 59 Net Interest Margin RMBS transactions issued between 2003 and 2005. The underlying loans are subprime and Alt-A.

Six classes from Nomura Home Equity Loan NIM notes, series 2006-FM2 and 2006-HE3, were downgraded by Fitch because of the actual pay-down performance of the NIM securities to date compared to initial projections, as well as changes that Fitch previously made to its subprime loss forecasting assumptions for the underlying transactions.

S&P cut ratings on 125 classes for $5.9 billion of 27 jumbo RMBS issued in 2007, reflecting the expectation that credit support for the affected classes is insufficient.

Moody's Investors Service upgraded four classes for $57 million of GS Mortgage Securities Corporation II, series 2004-C1, due to increased credit subordination levels and defeasance.

Three classes for $68 million of GMAC Commercial Mortgage Securities, series 2000-C1, were upgraded by Moody's due to increased defeasance and overall improved pool performance.

GE Commercial Mortgage Corporation 2005-C2 saw one class upgraded by Fitch as a result of 11.7 percent additional defeasance since Fitch's last rating action.


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

e-mail: [email protected]


Servicing News | Servicer Ranking | Delinquency Statistics
Stories about mortgage servicers, delinquency and f o r e c l o s u r e s. Coverage of servicing lawsuits and loan servicing technology.


Nonprime and Subprime News | Subprime Statistics
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hard money lending. Home-equity loans and home-equity lines of credit.


Commercial Mortgage News | CRE Lender Directory | CRE Statistics
Stories about commercial lending on multifamily, office, retail and industrial properties.



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