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Servicers, MBS Downgraded

Servicers, MBS DowngradedRecent mortgage ratings activity

August 27, 2007


Fitch Ratings was busy last week with downgrades.

The New York-based agency downgraded $164.4 million of notes issued by Independence VII CDO LTD. About 86 percent of the collateralized debt obligation, which closed in March 2006 and is managed by Declaration Management & Research LLC, is residential mortgage-backed securities, and the rest is commercial MBS and CDOs. Declining subprime performance and downgrades to the underlying securities have plagued the issuance.

More than $66 million in classes of another CDO, Glacier Funding CDO III LTD, were downgraded by Fitch. Significant deterioration in subprime collateral backing the fund, managed by Terwin Money Management LLC, was cited by the agency. Subprime RMBS account for 39 percent of the fund’s exposure.

Four classes of notes issued by Enhanced Mortgage-Backed Securities V LTD for $70 million were downgraded by Fitch while another $144 million was placed on rating watch negative. The mortgage market value CDO managed by Babson Capital Management LLC may have to be liquidated because the net asset value trigger has been tripped and there may be further losses.

GMAC Mortgage LLC had its residential primary sub-servicer rating and its primary servicer ratings for prime and Alt-A loans lowered to RPS1- from RPS1, according to Fitch. The servicer rating for subprime, high loan-to-value and home-equity lines and loans was lowered to RPS2+ from RPS1, while GMAC’s special servicer rating was cut to RSS1- from RSS1. All of the ratings were placed on watch.

The ratings are on a scale of one to five, with one being the best.

Fitch cited a downgrade in the senior debt of parent Residential Capital LLC as well as “continued pressure on ResCap’s liquidity position and financial flexibility in the increasingly challenged residential mortgage market and its potential impact on GMAC Mortgage’s loan servicing operations.”

Concern about ResCap also pushed ratings lower at subsidiary Homecomings Financial Network LLC. That unit’s residential primary servicer rating for prime product was lowered to RPS1- from RPS1 while its ratings for Alt-A, subprime, high LTV and HEL product was cut to RPS2+ from RPS1. Homecomings’ residential special servicer rating was dropped to RSS1- from RSS1 while all of its servicer ratings were placed on rating watch negative.

GMAC-RFC had its master servicer rating downgraded to RMS2+ from RMS1 over ResCap concerns.

Over at Countrywide Home Loans, servicer ratings for Alt-A, subprime and HEL product was cut to RPS1- from RPS1, Fitch announced. Countrywide’s residential special servicer rating was lowered to RSS1- from RSS1 and its master servicer rating was dropped to RMS2+ from RMS1-. Each of the ratings was placed on watch.

While performance of the company’s servicing operation has maintained, the downgrade of senior debt ratings at Countrywide Financial Corp. because of liquidity concerns could directly impact the servicing unit.

But ratings news wasn’t all bad.

KeyBank Real Estate Capital had its commercial MBS primary servicer rating bumped to CPS1 from CPS1- and its master servicer rating increased to CMS1 from CMS1- by Fitch. KeyBank’s total servicing portfolio was 13,363 loans for $125.8 billion as of May 31, including $82.2 billion in CMBS.

Among factors cited for the upgrade were KeyBank’s management, technology and parent company’s strength, Fitch reported.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of


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