No End In Sight for Subprime Downgrades

Recent MBS ratings activity
April 23, 2008
By SAM GARCIA

Classes of subprime residential mortgage-backed securities continued to take a beating by Moody's Investors Service. Fitch Ratings was busy, meanwhile, upgrading and downgrading commercial MBS.

Fitch downgraded $0.1 billion in classes of IndyMac mortgage pass-through certificates issued in 2003 and 2004. Delinquency of at least 60 days ranges from 11.0 to 30.7 percent.

Moody's cited higher-than-anticipated rates of delinquency, foreclosure, and REO in the underlying subprime collateral relative to credit enhancement levels in its downgrade of the following tranches:

    * 226 tranches from 25 transactions issued by Structured Asset Securities Corp. in 2005, 2006 and 2007
    * 148 tranches from 19 Soundview Home Loan Trust issuances from 2005 through 2007
    * 131 tranches from 15 HSI Asset Securitization Corporation Trust RMBS issued from 2005 to 2007
    * 121 tranches from 15 Structured Asset Investment Loan Trust transactions issued in 2005 and 2006
    * 67 tranches from eight NovaStar Mortgage Funding Trust issuances in 2006 and 2007
    * 59 tranches from seven Terwin Mortgage Trust deals issued in 2006
    * 53 tranches from 10 Popular ABS Mortgage Pass-Through Trust issuances from 2005 through 2007
    * 50 tranches from six Wells Fargo Home Equity Asset-Backed Securities transactions issued from 2005 through 2007
    * 48 tranches from five SG Mortgage Securities Trust RMBS issued from 2005 to 2007
    * 43 tranches from seven Saxon Asset Securities Trust deals from 2005, 2006 and 2007
    * 38 tranches from six deals issued by Centex Home Equity Loan Trust and Nationstar Home Equity Loan Asset-Backed Certificates from 2005 to 2007
    * 26 tranches from three People's Choice transactions issued in 2005 and 2006
    * 25 tranches from three First NLC Trust RMBS issued in 2005 and 2007
    * 21 tranches from six Ameriquest Mortgage Securities Inc. issuances in 2005 and 2006
    * 12 tranches from Lehman ABS Mortgage Loan Trust 2007-1
    * nine tranches from EquiFirst Loan Securitization Trust 2007-1
    * nine tranches from Wachovia Mortgage Loan Trust 2005-WMC1

Moody's also downgraded the following Alt-A transactions for the same reasons:1

    * 65 tranches from 46 RMBS issued by IndyMac from 2005 through 2007
    * 64 tranches from 28 deals issued by Countrywide in 2005, 2006 and 2007

Deterioration in the credit quality of the underlying portfolio prompted Moody's to downgrade notes issued by C-BASS CBO XVIII Ltd.

The Mortgage Bankers Association, the Commercial Mortgage Securities Association, the Real Estate Roundtable and the National Association of Realtors Monday sent a joint letter to Senate Banking Committee Chairman Christopher Dodd and ranking member Richard Shelby opposing proposals that would differentiate between structured finance products and corporate and municipal bonds. Instead, the groups, which were providing input for a ratings hearing yesterday, called for better investor education.

Today MBA issued a statement in support of the Senate's move to improve the ratings process and noted the Securities and Exchange Commission will solicit further industry comments that will be released this summer.

Citing increased credit enhancement levels as a result of pay down and additional defeasance since its last rating action, Fitch upgraded seven classes for $86 million of Morgan Stanley Capital, series 2004-TOP13.

Six classes for $70 million from ARCap 2004-RR3 Resecuritization Inc., series 2004-RR3, were downgraded by Fitch.

Fitch attributed the upgrade of seven classes for $67 million from GS Mortgage Securities Corp. II, series 2004-C1, to the repayment of six loans and scheduled amortization since its last rating action.

Fitch cited paydown and defeasance since its last rating action in the upgrade of three classes for $57 million from GE Capital Commercial Mortgage Corp., series 2002-3.

Anthracite 2004-HY1 Ltd., a commercial real estate collateralized-debt obligation, saw two classes for $51 million downgraded by Fitch.

Two classes for $48 million of Madison Square 2004-1 Ltd.'s and Madison Square 2004-1 Corp.'s CMBS Backed Notes were upgraded by Fitch due to current credit enhancement to the rated classes in relation to the improved credit quality of the remaining collateral.

Increased subordination levels due to additional payoffs and scheduled amortization since issuance lead Fitch to upgrade five classes for $33 million of Washington Mutual's commercial mortgage pass-through certificates, series 2005-C1.

Fitch cited current credit enhancement in relation to the improved credit quality of the remaining collateral in its upgrade of three classes for $33 million of Morgan Stanley Capital I Inc. commercial mortgage pass-through certificates, series 2004-RR2.