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Mortgage Backed Securities | MBS News | MBS Statistics
News about commercial and residential mortgage-backed securities. Stories about ratings actions and changes to servicer ratings. Studies and reports about the performance of securitizations and problem vintages and classes. Subprime, Alt-A, home equity and j u m b o analysis.

Alt-A Ratings Slaughtered

Recent ratings activity on Alt-A RMBS

Sept. 4, 2009

By staff

Thousands of residential mortgage-backed securities backed by billions of dollars in Alt-A loans were recently downgraded by all three ratings agencies. A new report indicated that half of Alt-A loans backing RMBS issued between 2005 and 2007 have loan-to-values above 100 percent.

Standard & Poor's Ratings Services announced on Wednesday that it cut 864 ratings on 75 Alternative-A securitizations issued between 2005 and 2007.

"The downgrades reflect our belief that credit enhancement for the affected classes will be insufficient to cover projected losses due to increased delinquencies and the current condition of the housing market," S&P said. "We also lowered the ratings on certain senior classes due to principal shortfalls or write-downs in the final period of particular cash flow scenarios."

Classes from the following Alt-A issuances were impacted by S&P's actions.
  • Alternative Loan Trust issuances from 2005, 2006 and 2007;
  • American Home Mortgage Assets Trust issuances from 2005 and 2006;
  • American Home Mortgage Investment Trust RMBS issued in 2005 and 2006;
  • Asset-Backed Certificates Trust 2006-IM1;
  • Banc of America Alternative Loan Trust 2006-6;
  • Banc of America Funding 2006-A Trust and 2005-E Trust;
  • Bear Stearns issuances from 2005, 2006 and 2007;
  • CHL Mortgage Pass-Through Trust 2005 deals;
  • CMALT (CitiMortgage Alternative Loan Trust), Series 2006-A6;
  • CSMC Mortgage-Backed Trust Series 2006-4;
  • DSLA Mortgage Loan Trust 2005-AR4;
  • First Horizon Alternative Mortgage Securities Trust 2005;
  • GreenPoint Mortgage Funding Trust issuances closed between 2005 and 2007;
  • GSR Mortgage Loan Trust 2006-OA1;
  • Harborview Mortgage Loan Trust 2005-14;
  • IndyMac INDX Mortgage Loan Trust transactions from 2006;
  • JPMorgan Alternative Loan Trust and JPMorgan Mortgage trust RMBS securitized in 2005 and 2006;
  • Lehman Mortgage Trust and Lehman XS Trust deals from 2005 and 2006;
  • Luminent Mortgage Trust 2006-1;
  • RALI Trust deals issued between 2005 and 2007; and
  • Structured Asset Mortgage Investment II Trust transactions from 2005.

One day earlier, S&P said it downgraded 1,558 classes from 114 RMBS based on the same logic, while 1,619 tranches from 1577 Alt-A deals were lowered on Aug. 19. On Aug. 14, S&P slashed 944 ratings on 89 transactions, and 6,198 ratings were lowered on 611 RMBS on July 24. A June 25 set of downgrades by S&P impacted 427 ratings on 369 issuances.

Half of remaining Alt-A borrowers who took out their mortgages between 2005 and 2007 are now in a negative equity position, Fitch Ratings reported last month. But only 10 percent of borrowers who took out Alt-A loans prior to 2005 are upside down.

In addition, unemployment has continued a significant rise -- especially in California where the unemployment rate is 11.6 percent. Because 36 percent of Alt-A mortgages rated by Fitch are in California, Alt-A RMBS performance is likely to face continued pressure despite early signs that home prices are stabilizing

As a result, Fitch said it took various actions on 767 U.S. Alt-A RMBS.

Moody's Investors Service cited structural features and bond payment priority in its downgrade of the following tranches.

  • 12 classes for $654 million from Goldman Sachs issuances in 2006;
  • 16 certificates for $592 million from Morgan Stanley issuances from 2006 and 2007;
  • 11 tranches for $438 million from J.P. Morgan securitizations closed in 2006;
  • three ratings from Opteum Mortgage Acceptance Corporation Asset Backed Pass-Through Certificates 2006-1 and 2006-2;
  • 11 securities for $310 million from Deutsche Alt-A Securities, Inc. Mortgage Loan Trust Series 2006-AR1, 2006-AR6 and Deutsche Alt-B Securities Mortgage Loan Trust Series 2006-AB4;
  • 11 tranches for $291 million from CSAB Mortgage Backed Trust 2006-4 and 2006-3;
  • four ratings from four 2006 New Century Alternative Mortgage Loan Trust securitizations for $246 million;
  • three certificates from Nomura Asset Acceptance Corporation, Alternative Loan Trust, Series 2006-AF1, 2006-AF2 and 2006-WF1;
  • four classes for $76 million from WaMu Mortgage Pass-Through Certificates, WMALT Series 2006-5 Trust;
  • two certificates from Lehman XS Trust 2006-17 and 2006-5;
  • one class for $46 million from Citigroup Mortgage Loan Trust Inc. 2006-WF1;
  • one security for $30 million from IndyMac INDX Mortgage Loan Trust 2006-AR27;
  • two securities for $27 million issued by Banc of America Funding 2006--8T2 Trust; and
  • one $11 million security issued by RALI Series 2006-QS13 Trust.

Moody's said updated loss expectations on the underlying collateral relative to available credit enhancement prompted it to downgrade the following classes.

  • 34 certificates for $1.1 billion from CHL Mortgage Pass-Through Trust 2004-12, 2004-7 and 2004-HYB8;
  • five tranches for $165 million from Sequoia Mortgage Trust 2003-2 and 2004-3;
  • 13 ratings for $110 million from HarborView Mortgage Loan Trust 2004-10;
  • seven certificates for $69 million from Newcastle Mortgage Securities Trust 2004-1;
  • 2 tranches for $15 million Thornburg Mortgage Securities Trust 2004-1;
  • one tranche for $3 million from the Sequoia Mortgage Trust 2000-4; and
  • two classes of American Home Mortgage Investment Tr 2004-2 and 2004-3.

Higher-than-anticipated delinquency levels, increased severity of loss and slower-than-anticipated prepayments have pushed loss expectations higher given available credit enhancement for loans backing the following Alt-A classes -- prompting downgrades by Moody's.

  • 69 certificates for $1.2 billion from Bayview Financial issuances from 2004 to 2007;
  • 35 tranches for $1.13 billion from CHL Mortgage Pass-Through Trust 2005-HYB5 and 2006-HYB3; and
  • 37 classes for $761 million from CSMC Mortgage-Backed Trust Series 2007-2;

A higher-than-expected increase in delinquency and rising severities led Moody's to downgrade 13 Alt-A ratings for $980 million from Bear Stearns ARM Trust 2005-4.

Recent deterioration relative to expected performance on adjustable-rate mortgages backing three Countrywide securities from Alternative Loan Trust 2006-OC11, 2006-OC3 and 2006-OC4 prompted a Moody's downgrade.

Downgrades to 31 tranches from CSFB Mortgage-Backed Pass-Through Certificates, Series 2005-9, by Moody's were the result of quickly deteriorating performance, marked by rising delinquencies and loss severities, along with concerns about the continuing drop in housing prices nationwide and rising unemployment levels. Similar concerns were mentioned in the downgrade of eight classes for $72 million from MASTR Adjustable Rate Mortgages Trust 2007-3.

"Complete erosion of the overcollateralization and junior bonds, leaving the senior bonds exposed to future losses" was cited by Moody's for its downgrade of a class from Impac Secured Assets Corp. Mortgage Pass-Through Certificates, Series 2006-2.

An error in estimates used to calculate available credit support prompted Moody's to downgrade two tranches from TBW Mortgage-Backed Trust 2007-1.

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