Subprime Ratings Sink

Fitch Ratings announced it placed $186 million or five classes of notes of Delphinus CDO 2007-1, Ltd., on review for possible downgrade because of credit quality deterioration in the collateral, which consists primarily of 2006 and 2007 vintage subprime transactions. While a relatively small portion of the structured finance collateralized debt obligation has experienced actual rating downgrades, it is expected that additional negative rating migration will occur in the near to intermediate term.

Moody’s Investors Service placed on review for possible downgrade 28 certificates from eight deals issued by CDC Mortgage Capital Trust in 2001, 2002 and 2003, and six classes in two deals issued by IXIS Real Estate Capital Trust in 2005. The actions on the subprime collateralized deals are reportedly based on the analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to the expected loss.

The same reason was cited for the potential downgrade of 13 certificates of Residential Asset Mortgage Products Trusts, Series 2004-RS1, RS2, RS4, RS5, and RS8, and of four classes of RAMP Series 2004-KR1, according to two separate announcements from Moody’s.

Similar reasoning was behind possible lower ratings on two classes of MASTR Asset Backed Securities Trust 2003-WMC2 and four classes of Morgan Stanley ABS Capital I Inc. Trust 2004-WMC3, but also for potentially higher ratings on Class M-1 of Soundview Home Loan Trust 2004-WMC, Moody’s said of the WMC subprime loan-backed deals.

An analysis of the current credit enhancement levels provided by excess spread, overcollateralization, and subordinate classes relative to the expected loss was also cited by Moody’s for lower ratings on four classes of Ameriquest Mortgage Securities Inc. Series 2003-7 and Series 2003-AR2, and potential downgrades on 26 classes from 11 other deals originated in 2002 and 2003 by Ameriquest Mortgage Co. and Argent Mortgage Co.

Moody’s took several actions on CHL Mortgage Pass-Through Trust and Alternative Loan Trust in 2004, transactions backed by first-lien, Alt-A loans originated or acquired by Countrywide Home Loans Inc. Four classes in Alternative’s series 2004-6CB, 2004-8CB and 2004-J5 were downgraded because the current credit enhancement provided by subordination, overcollateralization and excess spread is low compared to the projected pipeline losses of the underlying pool. Class B from Alternative’s Series 2004-J13 faces a potential downgrade due to the growing pipeline and higher-than-expected losses. However, Class A-4 from CHL’s series 2004-HYB6 was upgraded based on the strong build-up in credit enhancement.

Countrywide Home additionally had servicer quality ratings lowered to SQ1- from SQ1 as primary servicer of subprime, government-insured and second-lien loans and as a special servicer, Moody’s announced. The Calabasas, Calif-based company could possibly see those ratings lowered further, as well as its SQ1 rating as primary servicer of prime loans. The actions reflect Moody’s downgrade of the senior unsecured ratings of Countrywide Home and parent Countrywide Financial Corp. and in the deposit rating of Countrywide Bank FSB.

Meanwhile, Fitch placed on review for possible downgrade the special servicer ratings of IndyMac Bank FSB, as well as the lender’s primary servicer ratings for prime, Alt-A and subprime residential loans. The actions reflect the corporate rating of IndyMac Bancorp recently placed on review for potential downgrade and the disruption in the secondary mortgage market — which the company has traditionally relied on to buy a majority of its production.