Billions of Dollars in Deals Downgraded

Standard & Poor’s lowered ratings on 158 classes of U.S. residential mortgage-backed securities backed by first-lien Alternative-A mortgage collateral issued from the beginning of October 2005 through the yearend 2006, according to an announcement Friday. The classes had an original total balance of about $660 million, representing 0.13 percent of $455.4 billion in RMBS backed by first-lien Alt-A collateral S&P rated in that period.

The lowered ratings follow S&P’s Aug. 7 announcement of revised assumptions for rating and surveillance of first-lien, Alt-A RMBS rated in the last quarter of 2005 through 2006.

Of the $660 million downgraded volume, about half were reportedly lowered to a rating of A, more than three-quarters lowered to between BBB and B-, and the rest lowered to CCC.

Only three of the 158 classes were not previously on CreditWatch, and they belong to Bear Stearns Alt A Trust 2005-10. Other affected transactions included those issued by American Home Mortgage Investment, Banc of America, Countrywide Asset Backed Securities, Deutsche, GMACM Mortgage, Impac, IndyMac, Lehman, Morgan Stanley, Terwin Mortgage Trust and Washington Mutual, according to S&P.

On Thursday, Moody’s announced it downgraded 691 securities originated in 2006 backed by subprime, closed-end, second-lien mortgages and placed 14 similar tranches on review for possible downgrade due to “extremely poor performance.” The cut securities reportedly had an original face value of $19.4 billion, representing 76 percent of the dollar volume and 84 percent of subprime CES transactions Moody’s rated last year.

“These loans are defaulting at a rate materially higher than original expectations,” Moody’s said. “Aggressive underwriting combined with prolonged, slowing home price appreciation has caused significant loan performance deterioration and is the primary factor in the negative rating actions.”

And, the “dramatically poor overall performance of closed-end second lien mortgages originated in 2006 has already impaired or is expected to impair junior tranches from most 2006 deals backed by these types of loans,” the ratings agency added.

The lowered ratings affected 78 Aaa-rated securities and 150 Aa-rated securities, most of which migrated by one rating category or less.

Also, 225 of the downgrades were to Caa, Ca, and C ratings. Thereby, subprime CES mortgages now rated Caa or below represent nearly 7 percent of the volume rated by Moody’s.

Among the issuers of the affected subprime CES transactions were ACE Securities Corp. Home Equity Loan Trust, American Home Mortgage Investment Trust, Bear Stearns Mortgage Funding Trust, C-BASS Mortgage Loan Asset-Backed Certificates, CSFB Home Equity Mortgage Trust, CWABS Asset-Backed Certificates Trust, First Franklin Mortgage Loan Trust, Fremont Home Loan Trust, GSAMP Trust, Merrill Lynch Mortgage Investors Trust, Morgan Stanley Mortgage Loan Trust, New Century Home Equity Loan Trust and Nomura Asset Acceptance Corp.

Thursday also held lower ratings by S&P on 50 tranches from 12 U.S. cash flow, hybrid collateralized debt obligation of asset-backed securities transactions. The downgraded tranches represent an issuance amount of $2.312 billion.

All of the affected CDO transactions are collateralized in part by mezzanine tranches of subprime first-lien RMBS.

Forty-seven of the lowered ratings were removed from CreditWatch with negative implications, but one class — Octans III CDO Ltd. A-1 –remains on such review.

Among the 50 tranches were classes of ACA ABS 2006-1 Ltd, Arca Funding 2006-II Ltd., Cetus ABS CDO 2006-1 Ltd., GSC ABS CDO 2006-4u Ltd., and Orion 2006-2 Ltd., Moody’s said.

Moody’s Investors Service upgraded the ratings of six classes of Credit Suisse First Boston Mortgage Securities Corp., Series 2002-CP3 commercial mortgage pass-through certificates, according to an announcement Monday. The upgrades were given to Classes C through F, which had an aggregate amount of approximately $100.8 million.