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Over $7 Billion RMBS Downgraded

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Over $7 Billion RMBS DowngradedRecent MBS ratings activity

February 21, 2008

By SAM GARCIA

Residential mortgage-backed securities saw tranches for more than $7 billion downgraded as a result of new loss forecasting assumptions for subprime deals. Activity was mixed on ratings for commercial deals.

Changes to Fitch Ratings subprime loss forecasting assumptions led to the downgrading of around $0.1 billion in classes of Washington Mutual mortgage pass-through certificates, series 2006-HE1. The deal, with loans originated by Long Beach and Lime Financial Services, has 60-day delinquency of 24.1 percent and cumulative expected losses of 16.1 percent.

Fitch’s updates impacted four Residential Asset Securities Corp. securitizations from 2006 –leaving about $1.2 billion in classes downgraded and another $0.9 billion on Rating Watch Negative. Those transactions have delinquency ranging from 19.3 percent to 22.3 percent and expected cumulative losses of between 19.2 percent and 24.5 percent.

Classes of ResMae mortgage pass-through certificates issued in 2006 totaling $0.4 billion were downgraded by Fitch, also due to the updates, while $0.3 billion was left of ratings watch. Delinquency is at 35.5 percent and cumulative losses are expected to be 29.5 percent.

In addition, Fitch’s changes left $0.7 billion in classes of People’s Choice mortgage pass-through certificates from 2006 downgraded and left another $0.6 billion on watch. That deal has 60-day delinquency of 30.3 percent and cumulative expected losses of 28.5 percent.

Among the largest downgrades as a result of Fitch’s subprime updates were $5.0 billion in classes of Long Beach mortgage pass-through certificates issued in 2006. In addition, classes totaling $3.1 billion remain on watch. Delinquency on the issuances ranges from 29.8 percent to 36.5 percent while cumulative losses are expected to be between 14.5 percent and 28.3 percent.

Six transactions from RAMP RZ issued in 2005 and 2006 saw 37 tranches placed on review for a downgrade by Moody’s Investors Service. The high loan-to-value deals, originated by RFC, have seen the amount of projected available credit enhancement reduced because of a rise in delinquent loans.

Moody’s reported it would attempt to contact the largest issuers affected when a bond insurer’s rating is lowered. Issuers had historically skipped the underlying rating because they were usually rated Aaa. But recent deterioration and the need for transparency have led the ratings agency to present the option of disclosing underlying ratings.

In the world of commercial MBS, Fitch said it upgraded two classes for $16.8 million of Morgan Stanley Capital, Inc.’s commercial mortgage pass-through certificates, series 1997-WF1 as a result of additional pay down and stable performance.

But the transfer of an underlying loan to special servicing caused the New York-based ratings agency to place two classes for $45.7 million of Lehman Brothers Inc.’s commercial mortgage pass-through certificates, series 2006-CCL-C2, on Rating Watch Negative:


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

e-mail: mtgsam@aol.com


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