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Fitch Joins Downgrade Party

Fitch Joins Downgrade PartyWarning issued on 170 subprime transactions

July 13, 2007


Just days following similar moves by the other two ratings agencies, Fitch Ratings warned investors it may lower the ratings of 170 subprime residential mortgage-backed securities. Meanwhile, another agency acted on its warnings.

The New York-based company announced Thursday that $7.1 billion in subprime transactions are under analysis, “indicating that Fitch will be issuing a rating action over the next several weeks.”

The affected securities represent 1.7 percent of the $428 billion in subprime securities rated by Fitch, the statement said. Just over 1,100 subprime transactions will not see any ratings changes this time around.

“Transactions that have relatively high aggregate outstanding loan balances in foreclosure and REO or exhibit declining overcollateralization trends will be identified by the screener as requiring a full credit committee review and are placed ‘Under Analysis’,” Fitch said.

Yesterday’s actions were prompted by continued negative credit trends in June, “particularly for the late 2005 and 2006 subprime vintages,” and changes made to subprime loss forecasting assumptions, according to the announcement.

On Tuesday, Moody’s Investors Service announced it took negative ratings action on 431 subprime transactions from last year. The aggregate value of the RMBS affected is more than $5.2 billion and represented 1.2 percent of Moody’s 2006 rated transactions.

Moody’s explained the actions were attributed to unexpected delinquency that has arisen from aggressive underwriting on 2006 mortgages combined with slowing appreciation. Securities issued from Fremont Investment & Loan, Long Beach Mortgage Co., New Century Mortgage Corp. and WMC Mortgage Corp. represented about 60 percent of Moody’s rating actions.

Earlier that day, Standard & Poor’s warned it may cut the ratings on $12.1 in subprime RMBS. Those transactions represented 2.13 percent of the $565.3 billion in transactions rated by S&P between the fourth quarter 2005 and the fourth quarter 2006.

“The CreditWatch actions are being taken at this time because of poor collateral performance, our expectation of increasing losses on the underlying collateral pools, the consequent reduction of credit support, and changes that will be implemented with respect to the methodology for rating new transactions,” S&P’s announcement said.

Yesterday S&P clarified that only 612 transactions for $7.35 billion were placed on CreditWatch, and that 498 classes for $5.69 billion were actually downgraded. Twenty-six classes remain on CreditWatch. Including $0.7 billion in subprime deals placed on CreditWatch before Tuesday’s announcement, at total of $6.39 billion was downgraded yesterday.

S&P said it will downgrade subprime second mortgage transactions next week, followed by a review of ratings on Alt-A transactions and net interest margin securities.


Avalanche of Downgrades
Residential mortgage-backed securities backed by second mortgages have been swept up in an avalanche of negative subprime ratings actions today. The majority of the actions occurred on transactions originated by just four companies.

Flood of Subprime RMBS Downgrades
More than $12 billion subprime residential mortgage-backed securities may see their ratings cut by Standard & Poor’s — which is revising its methodology. Another agency quickly followed suit.


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


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