Fitch Finalizes Subprime Ratings Overhaul

PHH Mortgage Corp. could see downgrades by Fitch Ratings on its residential servicer ratings as a primary servicer of prime and Alt-A product, as well as home equity loans and lines. The ratings agency said the placement on Ratings Watch Negative reflects the uncertainty of the sales of parent PHH. Corp. to General Electric Capital Corp. and subsequently of PHH Mortgage to affiliates of The Blackstone Group., and on certain senior debt that was placed on Rating Watch Evolving.

Fitch said it completed “re-rating” all its rated 2006 vintage U.S. subprime residential mortgage-backed securities transactions, which number 228 and are made up of 3,231 classes with an outstanding balance of $173 billion.

Fitch began on it subprime RMBS ratings in July due to the reversal in home prices and their impact on high-risk mortgage products. In August, the agency started taking rating actions on some of the worst-performing subprime deals, with the most severe actions affecting subprime RMBS exclusively backed by closed-end second-lien loans or 274 rated classes worth $6.6 billion.

At the end of its review last month, Fitch had downgraded 1,003 classes with an outstanding balance of $18.4 billion, while affirming ratings of the remaining 2,228 classes valued at $155.1 billion. The lower ratings were most heavily concentrated among classes originally rated BBB+ or lower. Fitch noted it has affirmed 100 percent of its AAA ratings backed primarily by first-liens and that first-lien transactions make up the largest segment of the market.

Moody’s Investors Service announced it placed on review for possible downgrade ratings of seven tranches in Long Beach Mortgage Loan Trust 2003-2 through 2003-4 and five tranches in 2004-1 and 2004-2 because the protection to subordinate bonds had diminished as the available credit enhancement has decreased and the recent pace of losses in each of the primarily subprime-first-lien-backed deals has eroded overcollateralization below its targeted level.

Facing a potential downgrade by Fitch are $270 million in seven classes of notes issued by Visage CDO II LTD because of credit quality deterioration in the collateral, which primarily consists of structured finance collateralized debt obligations issued between 2004 and 2007, according to an announcement.

“Of particular concern, is the 70.20% issued between 2006 and 2007, 62.63% of which are mezzanine CDO tranches,” Fitch reported. “Most of these underlying CDOs are collateralized by 2005 and later subprime RMBS.”

Within the commercial mortgage-backed securities sector, Fitch announced it upgraded ORIX Capital Markets’ special servicer rating to CSS3+ from CSS3 to reflect the company’s “continued ability to work out and resolve commercial mortgage loans and real estate owned properties” in CMBS deals amid an experienced management team, stabilized employee turnover rate, a refinement of quality control and employee training programs and its commitment to technology. As of June 30, ORIX was specially servicing 35 CMBS loans totaling $187 million and managing seven REO assets valued at $47 million.

Defeasance and increased subordination levels earned upgrades for five classes or $97 billion of PNC Mortgage Acceptance Corp., Commercial Mortgage Pass-Through Certificates, Series 2000-C2, Moody’s said.

Higher ratings by Moody’s were seen on two classes worth $61 billion of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 1999-C1 because of defeasance and improved pool performance.

Meanwhile, increased subordination levels and overall pool performance earned upgrades for two classes worth about $87 million in Merrill Lynch Mortgage Investors Inc., Series 1998-C2, Moody’s said

And increased subordination levels and stable overall stable pool performance were cited by Moody’s for improved ratings on three classes or about $40 million of Banc of America Commercial Mortgage Inc., Series 2000-2.