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Billions Downgraded

Billions Downgraded

Recent RMBS ratings activity

September 10, 2007


photo of Coco Salazar
Billions of dollars in residential mortgage-backed securities were downgraded as one agency followed through with its reassessment of the quality of subprime deals.

The updates Fitch Ratings made to its subprime loss forecasting assumptions continued to take a toll on the RMBS ratings, according to announcements Friday. The changes, however, better capture deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness.

The New York-based ratings agency said it lowered ratings on $634 million in classes of three second lien-backed deals of Structured Asset Securities Corp. Argent was the sole originator of the collateral in affected issue, SASCO 2006-ARS1 — expected to have cumulative losses of 40 percent — and Aurora originated all the loans in both SASCO 2006-S1 and SASCO 2006-S2.

Fitch reportedly downgraded an additional $558 million in classes of six other SASCO transactions collateralized by second liens. Various originators were responsible for the collateral in SASCO 2005-S1, 2005-S3 and 2005-S5, while Aurora Loan Services was cited as originating a significant portion of the loans in SASCO 2005-S2, 2005-S6 and 2005-S7.

Over $547 million in classes of two GS Mortgage Securities Corp. transactions backed by second liens received downgrades, Fitch said. Long Beach originated all of the loans collateralizing GSAMP 2006-S1, and New Century was the sole originator of loans in GSAMP 2006-S2. The cumulative losses expected for the deals are respectively 37 percent and 30 percent.

Downgrades were reportedly issued by Fitch on close to $545 million in classes of two Countrywide deals backed by second liens originated by the lender itself. The affected issues, CWABS 2006-SPS1 and CWABS 2006-SPS2, are expected to have cumulative losses of 43 percent and 44 percent, respectively.

About $423 million in classes of SACO deals backed by second liens saw downgrades by Fitch as well. Waterfield originated close to a fifth of the loans backing affected SACO 2005-9, and SouthStar Funding LLC originated over a quarter of the loans in both SACO 2005-10 Group 1 and SACO 2005-10 Group 2.

ACE Securities Corp. received lower ratings on $351 million ACE 2006-SL2 classes. The transaction is backed by second lien loans — 60 percent of them by Long Beach Mortgage Co. — and expected to have cumulative losses of nearly 40 percent, Fitch said.

Fitch knocked down ratings on $330 million of certificates in Fremont Home Loan Trust 2006-B, a deal completely collateralized by Fremont Investment & Loan originations. While second lien-backed Fremont Home Loan Trust 2006-B Pool 2 is expected to have cumulative losses of 51 percent, first lien-backed Fremont Home Loan Trust 2006-B Pool 1’s cumulative losses are expected at 12 percent.

Fremont Home Loan Trust also saw downgrades on $38 million certificates of Fremont 2005-2, backed by Fremont Investment subprime originations, Fitch announced.

Downgrades were also placed on over $226 million CSFB HEAT mortgage pass-through certificates, Fitch said. The subprime loans in affected issues CSFB HEAT 2006-2 and 2006-5 were from various originators, while Wells Fargo originated 43 percent and a third of affected CSFB HEAT 2006-3 and 2006-4.

About $180 million in New Century 2006-S1 mortgage pass-through certificates reportedly had ratings lowered by Fitch. The transaction backed by New Century-originated second liens is expected to have cumulative losses of 41 percent.

Terwin Mortgage Asset Securities Corp. had downgrades on $121 million certificates second lien-backed Terwin 2006-6 Group 2, Terwin 2006-8 Group 2 and Terwin 2006-HF1, Fitch said.

Last but not least, Fitch’s updated subprime loss forecast assumptions reportedly also resulted in lower ratings on nearly $20 million classes of Citigroup Mortgage Loan Trust 2006-CB3.

Meanwhile, Fitch cited a deterioration of credit enhancement relative to expected future losses as the reason for downgrades on several other subprime RMBS classes.

Amongst these were downgrades on $435 million in Credit Suisse First Boston Home Equity Asset Trust subprime transactions. The affected CSFB HEAT deals were series 2002-4, 2003-3, 2003-4, 2003-5, 2003-6, 2003-7, 2004-1, 2004-2, 2004-3, 2004-4, 2004-5, 2004-6, 2004-7, and 2004-8. An affiliate of Credit Suisse First Boston Mortgage Securities Corp. bought all of the deals’ loans from various sellers.

Specialty Underwriting & Residential Finance received lower ratings on nearly $117 million in classes from subprime loan-backed trusts SURF 2003-BC1, 2003-BC2 and 2004-BC4. The loans were acquired by Merrill Lynch Mortgage Lending Inc. from various originators and were originated in line with SURF underwriting guidelines. As of the July 2007 remittance period, the overcollateralization on the series 2003-BC1 deal was completely exhausted, Fitch noted.

Downgrades of about $50 million were seen in Residential Asset Securities Corp. subprime deals RASC, Series 2003-KS6, Series 2003-KS11 Group 2-3 and Series 2004-KS2 Group 2-3, Fitch said. The series have experienced monthly losses that could not be covered by excess spread for at least five of the past six months.

Fitch lowered ratings on about $42 million or 12 classes from Option One trusts Series 2002-1, Series 2002-6, Series 2003-1, Series 2003-3 and Series 2003-6. The overcollateralization on the subprime RMBS has been below the target amount for at least 9 of the last 12 months, Fitch said.

Asset Backed Securities Corp. saw downgrades on $40 million in classes of Series 2003-HE3, Series 2003-HE4, Series 2003-HE5, Series 2004-HE3, and Series 2004-HE7. The second to last of these is primarily backed by loans originated or acquired by Option One, while the collateral in all the other affected deals consists of loans originated or acquired by New Century. The deals are generally experiencing monthly losses greater than the available excess spread.

The last of deals receiving downgrades by Fitch because of a deteriorating relationship between credit enhancement and expected future losses were Countrywide Asset-Backed Securitizations trusts Series 2003-BC3 and Series 2003-BC6 — which had downgraded totaling $35 million. Overcollateralization on the deal, which consists of subprime loans were purchased from Countrywide Home Loans, has been below the target amount for the past year.

Meanwhile, Fitch said it also downgraded Ballantyne Re plc’s class A-1, B-1 and B-2 notes because the class A-1 notes no longer had a risk profile consistent with the AA rating category and classes B-1 and B-2 had interest payments suspended. The ratings agency noted that certain reserve funds supporting the Ballantyne Re transaction have material exposure to subprime residential ABA and MBS that have experienced significant market value declines over the past few months. Ballantyne is incorporated and registered in Ireland.

Moody’s Investors Service placed under review for possible upgrade 22, and for possible downgrade 18 certificates issued in 2004 and backed by Fremont-originated subprime loans. The actions were based on the analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to the expected loss.

Moody’s cited the same reasoning for why Homestar Mortgage Acceptance Corp. may see ratings change in five transactions backed by mostly Alt-A loans. The ratings agency placed two classes on review for possible downgrade, but another seven face a potential upgrade.


Coco Salazar is an associate editor and staff writer for

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