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2nds, Subprime Downgraded

2nds, Subprime Downgraded

Recent ratings activity

November 7, 2007


photo of Coco Salazar
Poor second lien performance has led to a wave of downgrades on residential mortgage-backed securities. Subprime ratings continued to be hammered though there were several upgrades to commercial transactions.

Moody’s Investors Service today announced it downgraded 88 classes and placed on review for possible downgrade 18 classes from 18 deals issued in early 2007 and backed by closed-end second lien mortgage loans. The loans have been performing “extremely poor” with a high rate of early default, resembling the performance of piggyback loans securitized in 2006 due to aggressive underwriting guidelines combined with prolonged home price decline.

The downgrades occurred in ACE Securities Corp. Home Equity Loan Trust, Series 2007-ASL1 and SL1; Alliance Bancorp Trust, Series 2007-S1; American Home Mortgage Assets Trust 2007-3; American Home Mortgage Investment Trust, Series 2007-A; Bear Stearns Mortgage Funding Trust, Series 2007-SL1 and SL2; Bear Stearns Second Lien Trust Series 2007-1 and SV1; C-BASS Mortgage Loan Asset-Backed Certificates, Series 2007-SL1; CSFB Home Equity Mortgage Trust, Series 2007-2; First Franklin Mortgage Loan Trust, Series 2007-FFA and FFC; Merrill Lynch Mortgage Loan Trust, Series 2007-SL1; Morgan Stanley Mortgage Loan Trust, Series 2007-4SL; Nomura Asset Acceptance Corp., Alternative Loan Trust, Series 2007-S1; and SACO I Trust, Series 2007-1 and 2. Those with classes that could see lower ratings are ACE’s ASL1 series, American Home, Bear Stearns Mortgage, First Franklin’s FFA series, Nomura and SACO, according to the announcement.

Fitch Ratings announced downgrading $42.1 million in classes of SunTrust Alternative Loan Trust 2006-1F mortgage pass-through certificates due to a deteriorating relationship between credit enhancement and future expected losses.


Late Tuesday afternoon, Fitch Ratings announced it downgraded $4.4 billion and placed on Rating Watch Negative $3.8 billion in classes of subprime residential mortgage-backed securities issued in 2007. The negative actions were based on updated subprime loss forecasting assumptions, which better capture deteriorating performance of 2007, 2006 and late 2005 pools. Some of the downgraded classes are within the amount that face potential downgrades.

The downgrades were seen in $1.2 billion in classes of Soundview Home Equity Loan Trust Series 2007-1 and WMC1; over $1 billion of Structured Asset Securities Corp. 2007-BC2, MLN1 and WF1; $839 million of Securitized Asset Backed Receivables 2007-HE1, NC1 and NC2; $361 million of HASCO 2007-HE1 and OPT1; about $349 million of C-BASS 2007-CB1 through CB3 and SP1; nearly $236 million of IXIS Real Estate Capital Trust, Series 2007-HE1; over $213 million in RASC 2007KS1 and KS2; and almost $199 million of Carrington Mortgage Loan Trust, Series 2007-RFC1. Of the amount on Rating Watch Negative, $1 billion is from Soundview, $859 million from HASCO, $805 million from SABR, $609 million from SASCO, $450 million from IXIS and $69 million from C-BASS, Fitch reported.

Analysis of current credit enhancement levels provided by excess spread, overcollateralization, and subordinate classes relative to the expected loss resulted in downgrades by Moody’s on two classes of SASCO 2003-BC3; lower ratings on 14 classes of Long Beach Mortgage Loan Trust 2003-2 through 4 and 2004-1 and 2; upgrades to two classes of Centex Home Equity Trust Series 2004-D but downgrades on three tranches by Centex Home Equity Company Loan Trust 2004-1; upgrades on two classes but lower ratings on another two tranches issued by Soundview Home Loan Trust 2004-1. All transactions are backed by subprime loans, Moody’s said.

Meanwhile, Moody’s reported credit enhancement levels provided by subordinate classes relative to the expected losses resulted in upgrades to the ratings of four classes from Harborview Mortgage Loan Trust 2004-3 and 4, deals primarily backed by Alt-A, first-lien, adjustable-rate mortgages.

A $78.4 million class of GMAC Commercial Mortgage Securities Inc. was upgraded by Moody’s because of an 87 percent decrease in the aggregate balance. The weighted average loan-to-value is 74.4 percent.

Upgrades were also seen in five classes with an outstanding balance of about $232 million from Hilton Hotels Pool Trust, Commercial Mortgage Pass-Through Certificates, Series 2000-HLT: Moody’s said the improved ratings were due to the borrower’s election last month to defease the loan with U.S. government securities.

Two Classes of LB Commercial Mortgage Trust, 1998-C1, for $428.0 million were upgraded by Moody’s. More than one third of the loans backing the trust have paid off while about 20 percent are on the master servicer’s watch list. The weighted average loan-to-value is 80 percent.


Coco Salazar is an associate editor and staff writer for

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