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| As the government released a report critical of ratings agencies, hundreds of classes of residential mortgage-backed securities were downgraded. Among the affected issues were deals backed by jumbo, Alt-A and subprime loans. Classes of commercial MBS, however, saw a mix of upgrades and downgrades.
An extensive 10-month examination of the three major credit ratings agencies uncovered significant weaknesses in their practices and the need for remedial action, the Securities and Exchange Commission said last week. Since 2002, the three firms have struggled with the volume and complexity of subprime residential mortgage-backed securities and collateralized-debt obligations. None had specific written comprehensive procedures for rating RMBS and CDOs. “We’ve uncovered serious shortcomings at these firms, including a lack of disclosure to investors and the public, a lack of policies and procedures to manage the rating process, and insufficient attention to conflicts of interest,” SEC Chairman Christopher Cox said in the announcement. “When the firms didn’t have enough staff to do the job right, they often cut corners.” Standard & Poor’s Ratings Services issued a statement last week indicating its loss severity assumptions for transactions issued in 2006 can likely withstand our projected additional 10 percent home price decline. The findings were based on an analysis of 2006 subprime, alternative-A and prime-jumbo RMBS vintages. “On the other hand, we would need to revise our loss projections if foreclosure costs increased significantly beyond those used in our assumptions, foreclosure rates increased beyond our assumptions, or market values declined significantly more than projected,” S&P Credit Analyst Francis Parisi said in the statement. Moody’s Investors Service announced it downgraded the primary subprime servicer quality rating of Popular Mortgage Servicing Inc. to SQ3 from SQ3+. The move was prompted by worsening collection assessment and the uncertainty of the company’s ability to maintain servicing performance. Popular’s servicing portfolio was 78,598 loans for $10.9 billion as of April 30. S&P announced Wednesday it lowered ratings on 77 classes of mortgage pass-through certificates from 22 subprime residential mortgage-backed securities from various issuers as a result of the collateral performance. Impacted issues included:
S&P cut it ratings on four classes of Structured Asset Securities Corp. Trust 2005-SC1, reflecting a reduction in credit enhancement as a result of monthly realized losses, as well as the high amount of severe delinquencies. The loans backing the deal are subprime. Eight MASTR Asset Backed Securities Trust RMBS from 2006 saw 13 classes downgraded by S&P because of deteriorating performance of the subprime collateral pools as monthly net losses continue to significantly outpace monthly excess interest cash flows, resulting in the complete write-down of the overcollateralization. Ameriquest Mortgage Securities Inc. 2005-R4 add 2005-RN5 saw two classes downgraded by Fitch, reflecting actual pay-down performance of the net interest margin securities compared to initial projections and updates to Fitch’s subprime loss forecasting assumptions. Moody’s downgraded five tranches from BankUnited Trust 2005-1, an Alt-A option adjustable-rate mortgage transaction with negative amortization loans. The downgrades were based on higher-than-anticipated delinquency, foreclosures and REOs in the underlying collateral relative to credit enhancement levels. Five classes from HarborView Mortgage Loan Trust 2006-12, reflecting a steady increase in the dollar amount of loans in the transaction’s delinquency pipeline over the past six months, combined with deterioration in credit support due to realized losses. The deal is backed by ARMs. S&P said Friday that it lowered ratings on 118 classes from the following jumbo RMBS issued in 2005 and 2006 based on its opinion that projected credit support is insufficient to maintain the previous ratings:
S&P also lowered ratings on four classes of Structured Asset Mortgage Investments II Trust 2004-AR7 and Structured Adjustable Rate Mortgage Loan Trust, series 2005-21 and 2006-7, because the affected classes suffered principal write-downs, and are not expected to receive their full principal balance and because of negative projected credit support due to high delinquencies and adverse collateral performance. The deals are backed by jumbo loans. Four scratch-and-dent MASTR Specialized Loan Trust deals from 2004, 2006 and 2007 saw nine tranches downgraded by Moody’s. The actions were taken in light of the deteriorating housing market and rising delinquencies and foreclosures as many scratch-and-dent pools originated since 2004 are exhibiting higher-than-expected rates of delinquency, foreclosure, and real estate owned. S&P lowered ratings on five classes from Bear Stearns Asset Backed Securities Trust 2005-2, reflecting pool performance that has caused actual and projected credit support for the affected classes to decline. The transaction is backed by scratch-and-dent loans. In commercial, three classes of Wachovia Bank Commercial Mortgage Trust’s 2004-WHALE4 were downgraded by S&P, reflecting an analysis of the remaining loan in the pool. LB-UBS Commercial Mortgage Trust 2006-C7 saw 10 classes downgraded by S&P over concerns regarding the 12 loans that have reported debt service coverage below 1.0x, anticipated credit support erosion upon the eventual resolution of the two specially serviced assets and concerns with the eighth-largest loan. S&P downgraded six classes of GS Mortgage Securities Trust 2007-GKK1 following a full analysis of the transaction. Ratings were lowered on seven classes of GE Commercial Mortgage Corp., series 2005-C2, by S&P, reflecting credit deterioration of the pool. Credit Suisse First Boston Mortgage Securities Corp. 2005-C3 saw seven classes downgraded by S&P because of credit deterioration of the pool. ML-CFC Commercial Mortgage Trust 2006-3 saw five classes downgraded by Moody’s due to a decline in overall pool performance, increased loan to value ratio dispersion and estimated losses. Five classes of COMM 2006-FL 12 were downgraded by Moody’s due to loan performance loan issues. S&P upgraded six classes of Chrysler Building Mortgage Trust 2001-C3A, reflecting the full defeasance of a single fixed-rate subordinate B note. Four classes of Morgan Stanley Capital I Inc., series 1999-WF1, were upgraded by Moody’s due to increased credit support from loan payoffs and amortization. Chase Commercial Mortgage Securities Corp., multi-class mortgage pass-through certificates, series 2001-245 Park Avenue, saw two classes upgraded by Moody’s due to loan amortization. Fitch Ratings upgraded one class of NationsLink Funding Corporation 1999-SL as a result of additional paydown. One class of GMAC Commercial Mortgage Securities Inc. 1998-C2 was downgraded by Fitch as a result of an increase in specially serviced assets and loss expectations. In addition, two classes were upgraded because of additional credit enhancement due to significant pay down. |
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Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com. e-mail:Â mtgsam@aol.com |
