Massive Downgrades from Moody’s

The deals represent nearly 8 percent of the original dollar volume of such securities rated by Moody’s. Of the total downgraded, $3.8 billion remain on review for even lower ratings.

Another $24 billion of first-lien RMBS face potential downgrades, representing almost 6 percent of subprime first-lien securities volume rated in 2006. This included 48 Aaa-rated and 529 Aa-rated securities, which generally are not expected to move by more than three notches. The most heavily impacted securities were originally rated Ba, Baa, or A, but rating migrations have been much more severe for more deeply subordinated tranches of 2006 subprime deals, Moody’s said.

The rating actions incorporated Moody’s long-range views on the performance of the deals. Moody’s assumes that the severity of loss associated with loans that are now seriously delinquent will be 40 percent to 50 percent, on average. Based on its recent survey of subprime servicers, the ratings agency also assumes that significant loan modifications that might mitigate future losses are not likely to occur in the near term.

Other factors that Moody’s reportedly took into account were continued declining home prices, the tight lending environment, aggressive underwriting standards, and the steady deterioration in the performance of 2006 loan originations as well as significant differences in loan performance by originator.

Amongst the issuers affected by the downgrades were Fieldstone Mortgage Investment Trust 2006-1, FF1 and FFH1; Fremont Home Loan Trust 2006-2 and A; GE-WMC Asset-Backed Pass-Through Certificates, Series 2006-1; GSAMP Trust 2006-FM1, HE2 and NC1; HASCO 2006-WMC1; HSI Asset Securitization Corporation Trust 2006-HE1, NC1 and OPT1; IndyMac Home Equity Mortgage Loan Asset-Backed Trust, INABS 2006-A; IXIS Real Estate Capital Trust 2006-HE1; J.P. Morgan Mortgage Acquisition Corp. 2006-ACC1, CW1, FRE1, HE1,RM1, WMC1, CH2, CW2 and NC1; Long Beach Mortgage Loan Trust 2006-1 and WL1; MASTR Asset Backed Securities Trust 2006-AM1, FRE1, HE1, NC1, WMC1, Merrill Lynch Mortgage Investors Trust 2006-AHL1, AR1, FM1, MLN1, OPT1, RM1, WMC1 and HE1.

Other issuers included Morgan Stanley ABS Capital I Inc. Trust 2006-2; Morgan Stanley Capital I Inc. Trust 2006-HE1 and NC2; Morgan Stanley Home Equity Loan Trust 2006-1; Morgan Stanley IXIS Real Estate Capital Trust 2006-1; New Century Home Equity Loan Trust 2006-1; Nomura Home Equity Loan Trust 2006-FM1, HE1 and WF1; NovaStar Mortgage Funding Trust Series 2006-2; Option One Mortgage Loan Trust 2006-2; Ownit Mortgage Loan Trust 2006-3; People’s Choice PFRMS 2006-1; Popular ABS Mortgage Pass-Through Trust 2006-B; RAMP Series 2006-EFC1 Trust, EMX1 and KS1; Renaissance Home Equity Loan Trust 2006-2; ResMAE Mortgage Loan Trust 2006-1, Saxon Asset Securities Trust 2006-3; Securitized Asset Backed Receivables LLC Trust 2006-CB1, SG Mortgage Securities Trust 2006-FRE1 and OPT2; Soundview Home Loan Trust 2006-2; Speciality Underwriting and Residential Finance 2006-3, AB3, and BC2; Structured Asset Investment Loan Trust 2006-1 and BNC1; Structured Asset Securities Corp 2006-W1; Terwin Mortgage Trust 2006-1, 11ABS, 3 Group I and 5 Group 1; WaMu Mortgage Pass-Through Certificates, WMABS Series 2006-HE1; and Wells Fargo Home Equity Asset-Backed Securities 2006-1 Trust.

As a result of Thursday’s actions, Moody’s expects less future rating volatility for 2006 first-lien RMBS under the conditions that home price depreciation remains less than 10 percent from peak to trough and the current economic environment remains stable.

Moody’s separately announced it lowered the rating of Class B-2 of Morgan Stanley Dean Witter Capital I Inc., Series 2002-AM3, a transaction backed by first lien loans originated by Aames Financial Corp. The most subordinate certificate was downgraded because existing credit enhancement levels may be low given the current projected losses on the underlying pools, Moody’s said, noting the class was in danger of taking write-downs.

Two tranches of CSFB Mortgage-Backed Pass-Through Certificates, Series 2001-11, also saw downgrades by Moody’s to reflect write-downs on certain tranches and the “continued threat posed by remaining delinquencies in the pool which, although substantially covered by mortgage insurance, may see further high severities.”

Due to collateral credit quality deterioration, Fitch Ratings announced it placed on review for possible downgrade $791 million or six classes of notes issued by Duke Funding XIII Ltd., which is a hybrid structured finance collateralized debt obligation. The ratings agency noted that about 9 percent of the portfolio has been downgraded or put on review for downgrade and that there is exposure to 2006 and 2007 subprime RMBS.

Such deterioration also put $272 million or four classes of notes issued by Ridgeway Court Funding II Ltd. on Rating Watch Negative, Fitch said, noting that most of the underlying structured finance CDOs are collateralized by subprime RMBS issued between 2005 and 2007.

Those factors reportedly also led to Fitch placing about $191 million or five classes of notes issued by Maxim High Grade CDO II Ltd. on review for possible downgrade.

Also facing potential lower ratings as a result of credit quality deterioration are $13 million or two classes of notes issued by Silver Marlin CDO I Ltd., which have exposure to 2006 and 2007 subprime RMBS, Fitch reported.

In response to investor requests for more data and information on ratings activity, Fitch Ratings and Derivative Fitch said they will be providing monthly updates of rating actions taken in both U.S. RMBS and structured finance CDOs. The updates will provide a graphical view of year-to-date rating performance for such deals and show different perspectives of surveillance data including vintage, cumulative rating actions by month, and rating transitions by tranches and dollar amount.

Fitch noted that it is currently reviewing subprime RMBS ratings from the first quarter 2007 after recently having re-rated its entire universe of rated 2006 vintage subprime RMBS transactions.

One bit of positive news on the commercial side of business was Bear Stearns Commercial Mortgage Securities Corp., series 1998-C1, reportedly getting an upgrade by Fitch on a $32 million class as a result of increased credit enhancement levels due to prepayments, scheduled amortization as well as defeasance since the last ratings action.