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RMBS Ratings Hammered

RMBS Ratings HammeredRecent MBS ratings activity

April 7, 2008


While downgrades on residential mortgage-backed securities were dominated by subprime transactions, second lien, Alt-A and jumbo RMBS also saw plenty of negative activity. The only positive activity occurred on commercial MBS.

But first, because of weakening of financial and operating conditions, along with regulatory actions affecting Fremont Investment & Loan and parent company, Fremont General Corp., Moody’s Investors Service downgraded its servicer quality rating as a primary servicer of subprime loans from SQ4 to SQ4-.

In the world of subprime securitizations, nine Barclays Capital subprime transactions from 2005 saw $1.0 billion in classes downgraded by Fitch Ratings, while another $0.3 billion in classes were put on Rating Watch Negative. Cumulative expected losses range from 3.8 to 16.7 percent, and delinquency ranges from 23.0 to 51.3 percent. The actions were the result of changes to Fitch’s subprime loss forecasting assumptions.

Also downgraded as a result of Fitch’s updates were $0.7 billion in classes from six Bear Stearns Asset Backed Securities I Trust mortgage pass-through certificates from 2005. Delinquency ranged from 19.0 to 43.4 percent, and the total losses anticipated were from 3.9 to 13.3 percent. Just less than $0.3 billion was placed on watch.

Fitch’s updates led to the downgrade of $0.6 billion in classes on six Credit Suisse First Boston Home Equity Asset Trust mortgage pass-through certificates issued in 2005. In addition, $0.3 billion in classes were placed on rating watch. Delinquency ranges from 11.9 to 40.8 percent, while cumulative losses are expected to be from 3.0 to 15.3 percent.

Fitch also downgraded $0.5 billion in classes on seven subprime deals issued by Asset Backed Securities Corporation in 2005 and placed $0.3 billion on watch as a result of its updates. The cumulative expected losses range from 4.5 to 9.5 percent, while delinquency is between 27.7 and 38.2 percent.

Moody’s said it is reviewing subprime deals as part of an ongoing, wider review of all RMBS transactions, in light of the deteriorating housing market and rising delinquencies and foreclosures. “Many subprime pools originated from late 2005 through 2007 are exhibiting higher-than-expected rates of delinquency, foreclosure, and REO,” the agency stated.

Among securitizations impacted was ACE Securities Corp. Home Equity Loan Trust, which saw 315 tranches from 31 RMBS downgraded based on higher-than-anticipated rates of delinquency, foreclosure, and REO in the underlying collateral relative to credit enhancement levels. Of the downgraded certificates, 67 remain on review for further downgrades.

Long Beach Mortgage Loan Trust saw 238 tranches from 22 subprime RMBS issued between 2005 and 2007 downgraded, with 39 of those certificates remaining on review by Moody’s because of the same logic.

Moody’s cited the same reason for its downgrade of 218 tranches from 24 Merrill Lynch Mortgage Investors Trust subprime deals from 2005, 2006 and 2007. Of the downgraded tranches, 56 remain on review.

Forty-nine tranches from 11 subprime RBMS issued in 2005 and originated by WMC were downgraded by Moody’s. The downgrades occurred because of recent and expected pool losses and the erosion of credit support that followed.

Moody’s downgraded 46 tranches in seven First Franklin Mortgage Loan Trust subprime transactions issued in 2005 because the deals have experienced an increasing proportion of severely delinquent loans.

In the second lien and home equity sector, Moody’s downgraded 125 certificates, 25 of which were placed on review for further possible downgrade, on 18 transactions from 2006 and 2007 by SACO I Trust and Bear Stearns Mortgage Funding Trust. The downgrades take into account the declining performances of deals backed by closed-end-second and home equity line of credit collateral.

Terwin Mortgage Trust had 37 certificates downgraded by Moody’s, with two remaining on review for further possible downgrade, on eight transactions from 2006 and 2007. The downgrades came as an ensuing result of low levels of credit enhancement on the second lien and home equity line-of-credit bonds.

Moody’s downgraded 28 certificates and left nine on review from First Franklin Mortgage Loan Trust, series 2006-FFA, 2006-FFB and 2007-FFA because the second lien-backed bonds’ credit enhancement levels, including excess spread and subordination, were too low compared to the current projected loss numbers.

Soundview Home Loan Trust had seven certificates of series 2006-A downgraded by Moody’s, and one was placed on review for further possible downgrade. The downgrades on the second lien-backed deals came as a result of the low credit enhancement levels of the bonds in comparison to the current projected loss numbers at the prior rating levels.

For the same reason, Moody’s also downgraded seven IndyMac Home Equity Mortgage Loan Asset-Backed Trust certificates, series 2006-A, along with four certificates issued by GSAMP Trust 2005-S2. One of the certificates for IndyMac remains on review for further possible downgrade.

Alt-A activity was also negative, as Moody’s downgraded 119 tranches of 22 Alt-A transactions issued by Residential Accredit Loans Inc. in 2005, 2006 and 2007, and 50 of those remain on review for possible further downgrade. Moody’s also placed 55 additional tranches on review for possible downgrade. These actions were primarily the result of higher-than-expected rates of delinquency, foreclosure and real estate owned in the underlying collateral in relation to credit enhancement levels.

With similar justification, Moody’s also downgraded 52 tranches, with 22 of those on review for further possible downgrade, from 12 Alt-A transactions issued by Merrill Lynch during 2005, 2006 and 2007, and 56 more tranches were placed on review for possible downgrade.

The only activity on scratch-and-dent transactions was American Home Mortgage Investment Trust, series 2005-SD1, 2006-2, 2006-3, 2007-A and 2007-2, which saw 29 certificates downgraded, with three remaining on review for further downgrades. The transactions, backed by scratch-and-dent collateral, have seen substantial pool losses over the last few months — eroding credit enhancement available to the mezzanine and senior certificates.

Just one jumbo deal saw activity. Moody’s placed 23 tranches from 11 jumbo RMBS issued in 2006 and 2007 under review for possible downgrade. The actions come after jumbo prime RMBS have shown weak performances, mostly because they did not profit from home price appreciation and the ensuing build-up of homeowner equity.

Ratings activity was mixed on CMBS, with three classes for $114 million of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, series 2005-C20, placed on review for possible downgrade by Moody’s.

On a more positive note, Moody’s upgraded three classes for $102 million of Morgan Stanley Capital I Inc. Commercial Mortgage Pass-Through Certificates, series 1998-CF1, as a result a growth in defeasance, better pool performance and replenishment of interest deficits.

Three classes for $92 million of NationsLink Funding Corp., series 1999-1, were upgraded by Moody’s due to increased subordination levels due to loan pay offs and amortization, improved overall pool performance and defeasance.

In another upgrade, First Union National Bank Commercial Mortgage Trust had three classes of pass-through certificates, series 2002-C1, upgraded by Moody’s because of defeasance and largely better pool performance. But on the same transaction, Moody’s downgraded three classes as an ensuing result of realized and anticipated losses from specially serviced loans.

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