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Downgrades Hit Servicers, Bond Insurers

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Downgrades Hit Servicers, Bond InsurersRecent MBS ratings activity

February 13, 2008


Two mortgage servicers had their ratings downgraded because of volatile mortgage market conditions, while weakening bond insurer strength led to negative actions on the ratings of over 100 residential mortgage-backed securities classes. Commercial MBS, however, saw mixed activity.

Moody’s Investors Service downgraded the servicer quality rating of First Tennessee Bank National Association as a primary servicer of second lien loans to SQ2 from SQ2+ as a result of increased mortgage market volatility, a downgrade to parent First Horizon National Corp.’s long-term, senior unsecured debt and a downgrade to First Tennessee’s long term deposits rating.

Moody’s also said it cut the servicer rating of Bayview Loan Servicing to SQ2- from SQ2. The action was prompted by mortgage market weakness, the Bayview’s stability assessment was considered below average.

Fitch Ratings announced downgrades to 46 RMBS classes as a result of the downgrading of Ambac’s and its financial guaranty insurance subsidiaries’ Insurer Financial Strength.

Fitch also placed 87 classes of RMBS guaranteed by MBIA on Rating Watch Negative because the bond insurer saw its own Insurer Financial Strength rating placed on watch by the New York-based agency.

Eight classes for $565 million of First Franklin 2006-FFA mortgage pass-through certificates were downgraded because of changes to Fitch’s subprime loss forecasting assumptions. The second lien backed deals, which have a 10.4 percent 60 day delinquency rate, have suffered 10.2 percent in losses to date have expected remaining losses of 50.2 percent.

Merrill Lynch Mortgage Investors mortgage pass-through certificates issued in 2005 and 2006 saw $359.5 million in classes downgraded and $37.4 million in classes placed on Rating Watch Negative by Fitch. The actions were taken on the subprime deals based on deterioration in the relationship between credit enhancement and expected losses and reflect continued poor loan performance and home price weakness.

Standard & Poor’s Ratings Services announced downgrades to 67 tranches of 10 collateralized debt obligations for $7.6 billion, reflecting recent negative ratings actions on underlying subprime RMBS.

Fitch upgraded 4 classes for $73.8 million of LB-UBS commercial mortgage pass-through certificates, series 2003-C1, due to an additional 19% paydown and 6% defeasance since the last rating action.

Three classes for $30.3 million of FU-BofA Commercial Mortgage Trust 2001-C1 were downgraded by Fitch because of increased loss expectation from one specially serviced loan and an additional special serviced loan with projected losses.

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



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