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Subprime, 2nd Lien & Commercial MBS Downgraded


Subprime, 2nd Lien & Commercial MBS DowngradedRecent MBS ratings activity

February 26, 2008


As more than $8 billion in subprime residential mortgage-backed securities were downgraded, a number of classes from second lien and commercial MBS also saw negative ratings actions.

Ratings on $8.1 billion in classes from 10 transactions issued by Ameriquest Mortgage Securities and Argent Securities in 2006 were downgraded by Fitch Ratings and $4.3 billion remain on Rating Watch Negative. The actions on the subprime RMBS were taken due to changes Fitch made to its subprime loss forecasting assumptions. Delinquency of at least 60 days on the issuances is between 16.99 percent and 33.81 percent and cumulative losses are projected to be from 10.80 percent 22.73 percent.

Two New Century Home Equity Loan Trust securitizations from 2003 saw classes downgraded by Moody’s Investors Service because of the comparison of the bonds’ credit enhancement, including excess spread, relative to the current projected loss numbers.

Moody’s took negative ratings actions on a number of transactions backed by second liens as pool losses have eroded credit enhancement available to the mezzanine and senior certificates. Among the affected deals was SACO I Trust, series 2005-6, 2005-WM1 and 2006-1, of which Moody’s downgraded two classes.

Other second lien issuances impacted by Moody’s actions include two certificates downgraded and five classes placed on watch from Alliance Bancorp Trust 2007-S1; 19 downgraded certificates from three CSFB Home Equity Mortgage Trust deals from 2005; eight downgraded certificates and one class placed on review from American Home Mortgage Assets Trust 2007-3 and 2006-2; 10 downgraded certificates and three classes placed on review of Nomura Asset Acceptance Corporation, Alternative Loan Trust, Series 2005-S3 and 2007-S1; 22 downgraded certificates and one class placed on review from four Merrill Lynch Mortgage Investors Trust from 2005 and 2007;

Moody’s cited the same logic in negative actions on deals backed by home equity line-of-credit loans including its downgrade of five certificates and placing on review for downgrade of four certificates of GSR Mortgage Loan Trust 2005-HEL1; and seven downgraded certificates and 1 class placed on review of CWHEQ Revolving Home Equity Loan Trust, Series 2006-A.

Ratings on 78 tranches of 20 Terwin Mortgage Trust deals issued between 2003 and 2005 were downgraded by Moody’s while another 10 tranches were placed on review. The Alt-A transactions have seen weak performance in the underlying collateral pool and experienced diminished credit support.

Ratings on 40 tranches from 14 Bear Stearns Asset Backed Securities I Trust transactions from 2005 and 2005 were placed on review for downgrade by Moody’s based on current credit enhancement levels compared to current projected pool losses.

Moody’s placed 58 tranches of seven RAMP deals from 2005 on review for downgrade because projected available credit enhancement has been reduced due to a significant build-up of delinquent loans. The transactions include loans acquired by Residential Funding Corp. under a Negotiated Conduit Asset program established to acquire loans that do not comply with some of the criteria of RFC’s standard programs.

Fitch reported it downgraded 24 classes of RMBS due to a downgrade to FGIC, which guaranteed the bonds.

National City Bank had its servicer quality rating of SQ2+ as a primary servicer of second liens placed on review for a possible downgrade by Moody’s. Servicing is performed by National City Lending Services. The ratings agency cited mortgage market volatility, slowed originations and the possible downgrade of National City Corp.

Despite a forecasted decline of between 15 percent and 20 percent on commercial real estate values, Moody’s projects more upgrades than downgrade form commercial MBS this year compared to 12 downgrades and 160 upgrades in 2007. Older vintages are expected to outperform more recent vintages. Delinquency is projected at between 1 percent and 2 percent.

“Although several states are already experiencing economic slowdowns,their overall impact on commercial loan performance has been minimal so far, with rates of delinquency on loans continuing at their historically low levels of under 0.50 percent,” the ratings agency stated.

One class for $1,100.0 million of Credit Suisse First Boston Mortgage Securities Corp., Series 1998-C2, was downgraded by Moody’s. Although the transaction’s aggregate certificate balance has decreased by approximately 41.9 percent, losses of $34.5 million have been realized on the liquidation of 17 loans.

“Two loans, representing 1.6 percent of the pool, are in special servicing,” the agency said of the Credit Suisse deal. “Moody’s has estimated aggregate losses of approximately $10.8 million for all of the specially serviced loans. Twenty-four loans, representing 16.2 percent of the pool, are on the master servicer’s watchlist.”

Two classes for $110.5 million of Commercial Mortgage Acceptance Corp., Commercial Mortgage Pass-Through Certificates, Series 1997-ML1, were upgraded by Moody’s. As of Feb. 15, the transaction’s aggregate certificate balance has decreased by approximately 87.0 percent since securitization.

Seven classes for $87.7 million of J.P. Morgan Chase Commercial Mortgage Securities Trust, Commercial Mortgage Pass-Through Certificates, Series 2007-FL1, were downgraded by Moody’s because of reduced cash flow from loans backed by four Resorts International casino hotels.

Two classes for $20 million of LB-UBS Commercial Mortgage Trust 2000-C4 were upgraded by Moody’s while three classes for $22.5 million were downgraded.

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



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