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Flood of Downgrades Continues

Flood of Downgrades Continues

Fitch applies new subprime assumptions to billions in RMBS

September 11, 2007


photo of Coco Salazar
Fitch Ratings continued overhauling it ratings on several subprime residential-mortgage backed securities.

More transactions were affected Monday by Fitch’s recent change to its subprime loss forecasting assumptions, including downgrades to $1.2 billion in mortgage pass-through certificates of second lien-backed CSFB HEMT transactions. The affected issuers were CSFB HEMT 2005-3, 2005-4, 2005-5, 2006-1, 2006-2 FIXED SECONDS, 2006-3, and 2006-4.

First Franklin 2006-FFA, backed by subprime second liens, received lower ratings on $738 million in classes, Fitch said.

Also downgraded were $486 million in classes of First Franklin Mortgage Loan Trust, Series 2006-FF2, Series 2006-FF5, Series 2006-FF7, Series 2006-FF10, Series 2006-FF12, Series 2006-FF14, Series 2006-FF17 and Series 2005-FFH1. All the issues are expected to have losses of less than 10 percent, according to Fitch.

About $363 million in C-BASS 2006-SL1 and C-BASS 2007-SL1 received lower ratings by Fitch. Countrywide originated about 73 percent of the first deal and 71 percent of the second deal.

Fitch said it downgraded $267 million in classes from its IndyMac, Series INDS-2006, backed by subprime second liens.

Merrill Lynch Mortgage Investors 2006-SL2 had $171.4 million in class downgrades. Fitch said it expects the second lien transaction to have cumulative losses of 32 percent.

Almost $90 million in downgrades were taken by Fitch on SASCO 2005-WMC1, 2006-AM1, 2006-OPT1, and 2006-WF3, which are respectively collateralized by subprime loans solely originated by WMC, Aames, Option One and Wells Fargo.

The updated subprime loss forecasting assumptions also led to downgrades on $42 million in classes of UBS MASTR Second Lien Trust 2005-1, Fitch reported.

Fitch cited a deterioration in the relationship between credit enhancement and expected losses as the reason for downgrades in classes of deals issued by Structured Asset Investment Loan Trust, SASCO, Centex Home Equity Loan and Meritage Mortgage Corp.

Over $272 million in downgrades reportedly resulted on subprime-backed SAIL 2003-BC9, 2003-BC11, 2003-BC12, 2004-3 and 2004-BNC1, Fitch said.

Lower ratings by Fitch reportedly occurred in about $99 million in classes from SASCO ARC 2001-BC6, 2002-BC6, 2002-BC10, and SASCO 2002-HF2, 2003-BC1 and 2003-BC2.

Downgrades affecting about $26 million were seen in Centex 2001-B, 2002-A Group 1, 2002-A Group 2, 2002-C, and 2002-D.

Meanwhile, Meritage Series 2004-1 received downgrades on about $20 million in outstanding certificates. The subprime loans in the deal were originated by Long Beach Mortgage Co.

Ratings were knocked down on three classes, worth $40 million, of Enhanced Mortgage-Backed Securities V Ltd, with two of the classes remaining on review for further downgrade. Fitch cited that the transaction, a mortgage market value collateralized debt obligation managed by Babson Capital Management LLC, has violated over-collateralization tests and its asset portfolio, consisting mainly of MBS and ABS securities with an average rating of ‘AA,’ is currently being liquidated.

Fitch announced it downgraded and or placed on Rating Watch Negative several other mortgage market value CDO transactions due to concern about the proceeds that are likely to result from the sale or possible forced sale of assets “given the price volatility that even highly rated securities have seen in the current market environment.”

That was the case for two classes from Enhanced Mortgage-Backed Securities IV Ltd. worth $26 million that remain on review for further downgrades. The transaction, managed by Babson, is collateralized by assets including mortgage-backed securities and collateralized mortgage obligations, Fitch said.

The uncertainty of proceeds on assets was also cited for lower ratings on three classes of notes from Westways Funding X and placement of two classes from each Westways Funding VI through XI on review for possible downgrade. The transactions are managed by TCW Asset Management Co. and currently have portfolios of floating ‘AAA’ or agency collateral, with over half of the portfolio in agency securities, Fitch reported.


Coco Salazar is an associate editor and staff writer for

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