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Nonprime Servicers, RMBS Downgraded

Nonprime Servicers, RMBS Downgraded

Recent ratings activity

October 24, 2007


photo of Coco Salazar
As ratings on subprime securities continued to be pounded, Option One Mortgage Corp. and IndyMac Bank F.S.B. saw their servicer ratings deteriorate. But at least one servicer and several commercial-backed mortgage securities saw improvements to their ratings.

Fitch Ratings announced downgrades to 20 classes for $106 million of First Franklin Mortgage Loan Trust, Series 2002-FF1, Series 2003-FF5, Series 2004-FF1, Series 2004-FFH1 and Series 2004-FFH2. A deterioration in performance — 60-day delinquency ranges between 15 percent and 34 percent — has hurt the level of overcollateralization.

In addition, Fitch downgraded $18.9 million of classes from First Franklin Mortgage Loan Trust 2005-FFH2. Loans delinquent at least 60 days represent 27.93 percent of the portfolio while expected remaining losses are16.89 percent. Fitch cited recent changes to its subprime loss forecasting assumptions.

Deterioration in the relationship between credit enhancement and expected loss was also cited by Fitch for downgrading nearly $18 billion in conforming and nonconforming loan-backed IndyMac Home Equity Mortgage Loan Asset-Backed Trust SPMD, Series 2004-A.

Eleven classes of subprime loan-backed Securitized Asset Backed Receivables, Series 2004-DO1 and NC3 saw lower ratings by Fitch, which indicated this was because overcollateralization has stepped down.

SABR Series 2005-F reportedly received almost $17 million in downgrades and had over $13 million placed under review for possible downgrade due to the updated subprime loss forecasting assumptions Fitch recently made to 2006 and late 2005 pools.

Fitch lowered Option One’s residential primary servicer ratings for prime products to RPS2+ from RPS1 and for special products to RSS2 from RSS1, plus placed them on review for potentially further downgrade. The downgraded were due to the underlying corporate rating of parent Block Financial Corp. and ultimate parent H&R Block Inc., as well as the impact on Option One’s servicing platform of decreased loan originations, changes in credit lines, and uncertainties regarding the fourth-quarter-scheduled sale of the servicing platform to Cerberus Capital Management LP.

Meanwhile, Moody’s Investors Service downgraded the servicer quality ratings of IndyMac Bank F.S.B. to SQ2- from SQ2 as a primary servicer of prime residential mortgages, to SQ3+ from SQ2- as a primary servicer of subprime residential loans, and to SQ3+ from SQ2- as a special servicer. All the ratings are under review for possible further downgrade. Moody’s believes servicing quality could be impacted by challenges parent IndyMac Bancorp faces in restoring profitability to historical levels amid the change in its strategic direction and adverse business environment.

But Branch Banking and Trust Co. reportedly saw Fitch upgrade its residential mortgage primary servicer rating for prime product to RPS3+ from RPS3 due to an experienced management team, solid internal procedures and control, focused technology platform and the financial strength of parent BB&T Corp. As of June 30, BB&T serviced a $46.8 billion portfolio of 325,900 prime loans and 11,200 Alt A loans.

As for commercial mortgage-backed securities, the $17 million class E of Morgan Stanley Dean Witter Capital I Inc., series 2000-LIFE1, received a better rating from Fitch because credit enhancement levels increased after an additional 5.6 percent pay down since the last rating action.

Higher ratings were also seen in two classes worth $14 million of Morgan Stanley Dean Witter Capital I Trust 2002-IQ2. Fitch said this was due to defeasance of 13 percent and additional pay down of 6 percent since its last rating action.

Fitch also upgraded the $47 million class F of Merrill Lynch Mortgage Investors Inc., series 1996-C2. The ratings agency indicated this was due to the pool’s aggregate certificate balance decreasing over 90 percent since issuance, and because expected losses will be absorbed by a non-rated class upon liquidation.

Coco Salazar is an associate editor and staff writer for

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