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Jumbo Warnings Intensify

Jumbo Warnings IntensifyRecent reports, ratings target poor jumbo performance

February 26, 2009

By staff

Performance has been deteriorating more rapidly on non-agency prime jumbo loans that back residential securitizations than any other loan types. Ratings agencies have consequently taken negative actions on thousands of tranches recently.Delinquency of at least 90 days on prime jumbo loans backing securitizations issued during 2006 and 2007 stood at a staggering 4.41 percent as of the January distribution date, Standard & Poor’s Ratings Services reported today. During the past three months, severe delinquencies have jumped by 46 percent.

S&P said it raised its loss severity assumption to 40 percent from 30 percent as a result of the deteriorating performance.

“This change is based on our belief that the influence of continued foreclosures, distressed sales, an increase in carrying costs for properties in inventory, costs associated with foreclosures, and more declines in home sales will depress prices further and lead loss severities higher than we had previously assumed,” the press release stated.

The revised outlook prompted S&P to place 3,279 classes for $172.0 billion from 209 prime jumbo securitizations on CreditWatch with negative implications.

During December, S&P said it lowered ratings on 22 classes of 10 jumbo RMBS issued in 2003 and 2004. Declining credit support was blamed for those actions.

Data released by Lender Processing Services yesterday indicated that prime jumbo loans are performing more poorly than prime loans managed by Fannie Mae and Freddie Mac. The number of foreclosures starts on non-agency jumbo prime during January increased nearly 125 percent from January 2008 — more than any other product.

LPS added that the inventory of foreclosed jumbo loans has grown more for prime jumbo loans and option adjustable-rate mortgage than any other loan types.

“Even over a shortened time horizon, acceleration of deterioration in jumbo prime exceeds all other product,” LPS said.

The deterioration has come despite that FICO scores have been rising on prime jumbo loans.

Moody’s Investors Service downgraded tranches of the following jumbo residential mortgage-backed securities, citing “higher-than-anticipated rates of delinquency, foreclosure and REO in the underlying collateral relative to currently available credit enhancement levels.”

  • 574 tranches from 26 securitizations issued by Wells Fargo Mortgage Backed Securities Trust in 2006 and 2007;
  • 293 certificates from 23 RMBS securitized by CHL in 2006 and 2007;
  • 256 classes of 12 transactions issued by Chase in 2006 and 2007;
  • 27 tranches from J.P. Morgan Mortgage Trust 2006-A7;
  • nine classes of New York Mortgage Trust 2006-1;
  • three certificates from GSR Mortgage Loan Trust 2006-8F;
  • three tranches from Sequoia Mortgage Trust 2007-4;
  • two classes of Banc of America Mortgage 2007-2 Trust;
  • one tranche from J.P. Morgan Mortgage Trust 2006-S3; and
  • one certificate from MASTR Asset Securitization Trust 2006-2.

Moody’s cited “updated loss expectations on the underlying collateral relative to available credit enhancement” in its downgrade of 2 classes of Sequoia Mortgage Trust 11.

But not all jumbo news was bad.

Moody’s said it upgraded one tranche from Merrill Lynch Mortgage Investors Trust MLCC 2006-1.

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