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Negative Jumbo Ratings Actions Persist

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Just days after cutting the ratings on more than 5,000 Alt-A tranches, Standard & Poor’s Ratings Service downgraded thousands of classes from similar vintages of jumbo residential mortgage-backed securities. Including recent activity by another ratings agency, more than 7,000 tranches of jumbo RMBS have seen some sort of recent ratings actions.

New York-based S&P said it lowered ratings on 2,861 classes from 354 prime jumbo transactions issued between 2005 and 2007. As a result of the downgrades, 2,161 of the ratings were removed from CreditWatch with negative implications.

The downgrades reflected S&P’s opinion that credit enhancement for the impacted classes will be insufficient to cover projected losses because of increased delinquencies.

“We reviewed the individual delinquency and loss trends of each transaction for changes, if any, in risk characteristics, servicing, and the ability to withstand additional credit deterioration,” the report said. “We also lowered our ratings on certain senior classes due to principal shortfalls or write-downs in the final period of particular cash flow scenarios.”

Last week, S&P cut 5,589 ratings on 830 Alt-A RMBS — which was also issued in 2005, 2006 and 2007.

In December, Moody’s Investors Service said it revised its prime jumbo loss projections for securitizations closed between 2005 and 2008. Moody’s said the revisions were prompted by “rapidly deteriorating performance of jumbo pools in conjunction with macroeconomic conditions that remain under duress.” As a result, 4,474 tranches for $234 billion were placed on review for a possible downgrade. The next day, Moody’s placed $143 billion of jumbo certificates under review for downgrades because of higher loss projections.

A Moody’s analyst noted that pay-option jumbo adjustable-rate mortgages helped fuel appreciation in areas like California.

Nine classes from MASTR Adjustable Rate Mortgages Trust 2002-3 were downgraded in November by Moody’s, which cited deteriorating pool performance on the jumbo loans. In October, Moody’s downgraded one class of Citicorp Mtg Sec Inc 1994-05, citing loss expectations for the jumbo transactions. Moody’s pointed to rapidly increasing delinquency and loss severities in its downgrade of 13 tranches for $802 million from JP Morgan Mortgage Trust 2006-A3, which consists primarily of ARMs.

Back in August, two tranches for $154 million from Wells Fargo Mortgage Backed Securities Trust 2007-10 were downgraded — though the revision was the result of an error identified by Moody’s.

But Moody’s upgraded three tranches for $34 million from Banc of America Funding 2007-4 Trust in November because of newly available data that indicate stronger performance on the upgraded bonds.

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