Negative Ratings Actions on Over $139 Billion MBS

Fitch Ratings announced adjustments to its subprime loss projections as a result of marked deteriorating performance over the last several months, according to an announcement today. The declining performance was attributed “dramatic contraction in the mortgage origination and securitization markets,” pushing home prices down at an accelerating rate.

The New York-based agency said average cumulative loss expectations for subprime RMBS are now 21 percent for the 2006 vintage and 26 percent for the 2007 vintage.

As a result, Fitch said it placed 2,972 classes for $139 billion on Rating Watch Negative.

“The contraction in the mortgage markets has contributed to an acceleration and deepening of home price declines, and has eliminated the option to sell or refinance a home to avoid foreclosure for many borrowers,” the announcement stated. “Additionally, the apparent willingness of borrowers to ‘walk away’ from mortgage debt has contributed to extraordinarily high levels of early default, which is particularly noticeable in the 2007 vintage mortgages.”

Fitch’s actions follow similar moves this week by Standard & Poor’s Ratings Services and Moody’s Investors Service.

Fitch also announced updates to ResiLogic, its U.S. RMBS mortgage default and loss model which it said generally produces a higher expected loss for subprime and Alt-A mortgages and, to a lesser extent, prime mortgages.

Four tranches were downgraded and three placed on review from three Renaissance Home Equity Loan Trust deals from 2002 by Moody’s because of a reduction in projected available credit enhancement resulting from higher projected losses generated by a build-up of seriously delinquent loans as well as increased severities.

And Moody’s downgraded 25 tranches and placed on under review from three Long Beach Mortgage Loan Trust subprime deals from 2005 as a result of very high levels of delinquency and loss accompanied by deterioration of overcollateralization.

Moody’s cited similar reasons for its downgrade of 17 certificates and its placing on review for downgrade 2 certificates from Meritage Mortgage Loan Trust 2004-1, 2004-2 and 2005-1. The Meritage deals are backed by subprime first and second liens.

Three Finance America Mortgage Loan Trust subprime deals from 2004 saw 15 certificates downgraded by Moody’s — again for the same reasons.

But the news wasn’t all bad for RMBS.

Fitch reported it upgraded 9 classes for $16.5 million from ABN AMRO Mortgage Corp. pass-through certificates issued in 2003, reflecting an improvement in the relationship between credit enhancement and expected losses.

On the commercial side, Fitch said it placed the $17.8 million class L of GCCFC Series 2006-FL4 on Rating Watch Negative because of delinquent underlying loans.

Moody’s reported it placed eight classes for $126.6 million Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Securities Trust, Series 2007-TFL2, on review for possible downgrade due a default on one of the underlying loans.

Moody’s downgraded four classes for $19.4 million of Wachovia Bank Commercial Mortgage Trust 2006-C26 due to losses expected from the specially serviced loans and increased loan-to-value dispersion.

Declines in property occupancies and net cash flows led Moody’s to downgrade three classes for $5.4 million of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2006-Whale 7.

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

e-mail: mtgsam@aol.com