Massive Alt-A Downgrades

But first, Fitch Ratings upgraded American Home Mortgage Servicing residential servicer rating for prime, Alt-A and home equity products to RPS3- from RPS4 and removed the ratings from Rating Watch Negative. The ratings agency explained that the move was taken because the stable servicing management team of the Melville, N.Y.-based company remained stable as the unit was quickly sold out of bankruptcy to a subsidiary of WL Ross.

As of Oct. 31, Fitch said there were approximately 197,400 loans totaling $48 billion in the American Home’s servicing portfolio, including 133,200 prime loans for $39.6 billion, 32,100 Alt-A loans for $6.1 billion, 24,700 home equity loans totaling for $1.6 billion and 7,400 FHA and VA loans totaling $0.7 billion.

Fitch announced its updated subprime loss forecasting assumptions resulted in downgrades for nearly $265 million and placement on Rating Watch Negative for about $392 million of classes in NATIXIS Series 2007-HE2, which has a 60+ day delinquency rate of nearly 23 percent; downgrades on $224 million and potential lower ratings for over $26 million of Carrington Series 2007-FRE1; and downgrades on $63 million in classes of SG Mortgage Securities, 2007-NC1, which was entirely placed on review for possible downgrade.

And SG Mortgage Securities Trust 2007-NC1 had five tranches downgraded by Moody’s Investors Service because of higher-than-anticipated rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. Plus, Moody’s noted its analysis also included updated methodology on the non-delinquent portion of the transaction.

Such analysis also led Moody’s to reportedly downgrade three classes of EquiFirst Loan Securitization Trust 2007-1; four tranches of First NLC Trust Mortgage-Backed Certificates, Series 2007-1; 12 classes of IndyMac Home Equity Mortgage Loan Asset-Backed Trust, Series INABS 2007-A and B; and seven tranches of Newcastle Mortgage Securities Trust 2007-1. Plus, Speciality Underwriting and Residential Finance Trust, Series 2007-AB1, BC1 and BC2 had ratings downgraded on 16 tranches and could see lower ratings on six tranches, while Soundview Home Loan Trust 2007-1, OPT1, WMC1, and Series 2007-NS1 had 27 tranches downgraded and 11 placed on review for possible downgrade.

Alt-A, option ARM transactions also felt the effects of Moody’s analysis reflecting worse-than-expected delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels and updated methodology on non-delinquent portions.

Among the Alt-A downgrades were two tranches from MortgageIT Trust 2005-AR1; four tranches of American Home Mortgage Assets Trust 2006-6; 17 tranches of RALI Series 2005-QO3 Trust, which also saw five more tranches placed on review for downgrade; 32 tranches of CHL Mortgage Pass-Through Trust in 2006, which also saw 10 tranches placed on review for downgrade; 18 tranches of Lehman XS Trust in 2006 and late 2005, which had 1 tranche placed on review; 10 tranches from six transactions issued by Greenpoint Mortgage Funding Trust in 2006 and late 2005; three tranches of Zuni Mortgage Loan Trust 2006-OA1, of which one tranche remains on review for further downgrade; 29 tranches from six HarborView Mortgage Loan Trust deals issued in 2006 and late 2005, with another nine tranches facing further downgrades; and 12 tranches from five transactions issued by Luminent Mortgage Trust in 2006 and late 2005, of which two may see further downgrades and another tranche was placed on review. All of these deals are backed by negatively amortizing Alt-A ARMs.

Other option ARM negatively amortizing issues to be downgraded included MASTR Adjustable Rate Mortgages Trust 2006-OA1 and OA2, which saw downgrades on seven tranches and potential lower ratings on two tranches; Structured Asset Mortgage Investments II Trust 2005-AR7 and AR8, and 2006-AR1 through AR5, which received downgrades on 25 classes and possible downgrades on five classes; and Bear Stearns Mortgage Funding Trust 2006-AR1 through AR5 had 16 classes downgraded and six placed on review for possible downgrade. Plus, WaMu Mortgage Pass-Through Certificates, Series 2006-AR17, AR19 and AR5, and WMALT Series 2005-AR1, and 2006-AR1 through AR9 had 73 tranches downgraded and could see ratings knocked down on 25 classes.

One Alt-A deal that saw upgrades was Structured Adjustable Rate Mortgage Loan Trust Series 2004-13. Moody’s said the improved ratings on four tranches were due to strong performance of the mortgage pool. However, Moody’s downgraded six classes in Series 2004-11, and 2005-6XS and 8XS because of low credit enhancement levels relative to the current projected losses on the underlying pools.

Another subprime deal Moody’s issued lower ratings to, on 27 classes, was Aegis Asset Backed Securities Trust 2005-2 through 5, but the actions were based on its analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to expected losses. A high pipeline of seriously delinquent loans has diminished the protection available to the 27 tranches, the ratings agency explained.

Meanwhile, WMALT series 2006-3 reportedly saw nearly $17 million in classes downgraded and $25 million placed on Rating Watch Negative by Fitch due to a deteriorating relationship between credit enhancement and expected losses. The same reason was cited for $84.5 million in tranches downgraded by Fitch on First Horizon Alternative mortgage pass-through certificates transactions from 2005 and 2006.

Within the commercial sector, Moody’s announced it upgraded eight classes of LB-UBS Commercial Mortgage Trust 2003-C7 due to defeasance of the Sheraton Universal Hotel loan.

NationsLink Funding Corp.’s commercial mortgage pass-through certificates, series 1998-1 saw two classes totaling $36 million downgraded by Fitch because of increased expected losses resulting from recent valuations on specially serviced assets, which have declined since Fitch’s last review in July 2007, according to an announcement.