CMBS Contrast RMBS Ratings

While fears of a subprime contagion subside, Fitch Ratings does not anticipate subprime mortgage market woes will make a meaningful dent in the rating performance of U.S. consumer asset-backed securities. The ratings agency announced it expects only a modest deterioration in the performance of credit card, auto and student loan collateral to result from increasing economic pressures, and noted this deterioration begins from a period of historically low loss rates and is anticipated to remain within its base cases.

Fitch said it lowered the ratings of tranches in subprime mortgage-backed securities based on its updated subprime loss forecasting assumptions, which better capture the deteriorating performance of 2006 and late 2005 pools with regard to continued poor loan performance and home price weakness. The deals had been placed under analysis on Aug. 21.

The issuers affected were Ameriquest Mortgage Securities, Morgan Stanley, Renaissance, Citigroup Mortgage Loan Trust, HSI Asset Securitization Corp., Aegis Mortgage Corp., SG Mortgage Securities and American Home Mortgage Investment Trust.

The New York-based ratings agency downgraded $661 million in Ameriquest Mortgage Securities mortgage pass-through certificates backed by loans originated by Ameriquest, Argent Mortgage Co. and Olympus Mortgage Co. The downgrades affected tranches in AMSI 2005-R1, QUEST 2005-X2, ARSI 2006-M1, ARSI 2006-W1, ARSI 2006-W2 and PPSI 2005-WCW1.

Downgrades resulted for $100 million in classes of Morgan Stanley Capital I Inc, Trust 2006-NC2 and Morgan Stanley Capital I Inc, Trust 2006-NC3, Fitch said. New Century originated the loans backing these certificates.

CMLT series 2005-HE1 and series 2006-HE1 saw $58 million in downgrades by Fitch, which said close to 70 percent of the originations in the first deal were by WMC and more than half in the second deal were from Centex Home Equity Co.

HSI also saw downgrades on $58 million in classes but in deals collateralized completely by Option One Mortgage Corp. originations; HASCO 2006-OPT1, HASCO 2006-OPT3 and HASCO 2006-OPT4, Fitch reported.

Fitch announced it issued downgrades on about $45 million in outstanding certificates of Aegis Mortgage Corporation 2005-1.

The lowered ratings in Renaissance HELT 2006-3 affected $35 million in classes backed by Delta Funding Corp., Fitch said. The deal is expected to experience a cumulative loss of 8.56 percent.

In SG Mortgage Securities, series 2006-OPT2, $23 million in classes received downgrades, Fitch reported. The entire deal, backed by subprime originations by Option One, is expected to have cumulative losses of 9.47 percent.

Fitch announced it downgraded an additional $25 million in Morgan Stanley subprime issues because of deterioration in the relationship between credit enhancement and expected losses. It also placed one class on review for possible downgrade due to current trends in the relationship between serious delinquency and credit enhancement. The collateral involves originations or acquisitions by New Century Capital Corp. in 2004 and Aames Capital Corp.

Fitch also cited similar factors for downgrades on another $496 million of Ameriquest Mortgage Securities Inc. mortgage pass-through certificates. The transactions are backed by loans originated by Ameriquest, Argent or Olympus in 2003 or 2004, a news release indicated.

The same reason was cited for a downgrade on an $11 million class of the Delta Funding Corp. 2000-2 deal. The transaction’s high delinquency rates and losses have caused triggers to fail and principal distributions to be restricted to the senior class.

Fitch also downgraded about $14 million in Aegis 2004-1 classes because of the deteriorating credit enhancement and expected losses relationship. The deal is primarily backed by subprime loans that fully amortize or have balloon payments and have either fixed or adjustable rates.

Asset Backed Funding Corp. mortgage pass-through certificates saw $89 million in classes downgraded and $2 million in bonds placed on Rating Watch Negative by Fitch due to expected future losses.

Two classes of Salomon Brothers Mortgage Securities VII Inc. Series 2002-WMC2 were downgraded by Fitch because losses have exceeded excess spread for 10 of the last 12 months and eroded overcollateralization, according to an announcement. The deal’s subprime loans were originated by WMC.

Fitch downgraded $10 million or four classes of UBS Mortgage Asset Securitization Transactions Asset Back Securities Trust mortgage pass-through certificates because of deterioration in the relationship between credit enhancement and expected loss. The actions affected Series 2003-WMC2 and Series 2004-OPT1, which are backed by mortgages originated or acquired by WMC and Option One.

About $43 million in classes within Merrill Lynch Mortgage Investors series 2003-OPT1 and series 2003-WMC1 received downgrades from Fitch due to deterioration in the relationship of credit enhancement to future loss expectations, an announcement said.

Meanwhile, Moody’s Investors Service announced it downgraded 10 certificates from three deals issued by Terwin Mortgage Trust backed by subprime loans. The lower ratings resulted from credit enhancement provided by subordination, overcollateralization, mortgage insurance, and excess spread relative to expected losses. The affected issuers were reportedly Series 2004-1HE, Series 2004-3HE and Series 2004-5HE.

The ratings of two tranches issued by Structured Asset Securities Corporation 2003-BC3 face possible downgrade by Moody’s because protection available to the subordinate bonds has diminished. This has resulted from a decrease in available credit enhancement, and the recent pace of losses eroding to below target level the overcollateralization in the subprime deal, a press release indicated.

Classes of IXIS 2005-HE1 and 2006-HE1 totaling $155 million were downgraded by Fitch because of changes to subprime loss forecasting assumptions.

Several classes of IXIS Real Estate Capital Trust mortgage pass-through certificates CDC, series 2002-HE2, 2003-HE3, 2003-HE4, 2004-HE2, 2004-HE3 and 2004-HE4 were downgraded by Fitch because of a deterioration in the relationship between credit enhancement and future expected losses. The affected subprime classes total $170 million and are serviced by Ocwen Loan Servicing LLC and Countrywide Home Loans Inc.

Also, certain classes of certificates issued in 2004 and backed by WMC Mortgage Corp. subprime loans were placed on review by Moody’s, with 12 certificates facing a possible downgrade but 21 certificates a potential upgrade. The actions reflect analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to expected losses.

Moody’s also placed on review for possible downgrade and upgrade four tranches issued by Soundview Home Loan Trust 2004-1. While two tranches face better ratings because existing credit enhancement levels are high given the current level of delinquency in the underlying pool, the other two classes have experienced decreased available credit enhancement and eroded overcollateralization.

Higher ratings could also be a possibility for seven tranches issued by Harborview Mortgage Loan Trust in 2004, Moody’s said, citing that deals, primarily backed by Alt-A, first lien ARMs, have experienced lower than anticipated cumulative losses to date. The classes are in the 2004-3 and 2004-4 series.

The mostly negative ratings actions for RMBS contrasted CMBS — which predominantly saw upgrades.

Moody’s issued upgrades and downgrades to six classes of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2001-CK3. Improved ratings were for four classes for defeasance and increased subordination levels and downgrades on two classes resulted from realized losses and loan-to-value dispersion.

Upgrades on $1.3 million of Merrill Lynch Floating Trust Pass-Through Certificates, Series 2006-1 classes by Moody’s were due to the increased credit support from loan payoffs. Among the deal’s collateral are commercial mortgages.

Moody’s also upgraded the ratings of three classes of J.P. Morgan Chase Commercial Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2002-C1. The action was due to improved pool performance, additional defeasance and increased credit support.

Meantime, Fitch upgraded $25 million in classes of JP Morgan Commercial Mortgage Finance Corp., commercial mortgage pass-through certificates, series 2000-C10. The actions were based on increased credit enhancement levels from loan payoffs, amortization and the defeasance of an additional six loans since Fitch’s last rating action, according to an announcement.

Moody’s announced it also upgraded a $24.9 million class of Stanley Dean Witter Capital I Trust 2000-LIFE2, Commercial Mortgage Pass-Through Certificates, Series 2000-LIFE2.