RMBS Ratings Suffer as CMBS Shine

Fitch Ratings announced Thursday it finished reviewing its universe of rated U.S. subprime residential mortgage-backed securities transactions originated in the first quarter 2007, which consisted of 29 deals with 435 rated classes worth $20 billion in outstanding balances. The most severe ratings actions affected deals that exhibited poor early performance and high projected losses relative to available and projected credit enhancement.

The vintage had 226 classes, or nearly $6 billion, downgraded and 28 classes worth over $3 billion placed on Rating Watch Negative, while the rest had ratings affirmed. Classes downgraded to below-investment grade are expected to have substantial risk of principal loss, Fitch said.

Moody’s Investors Service announced it downgraded 86 classes and placed under review for possible downgrade 37 classes from Morgan Stanley Mortgage Loan Trust 2005-11AR, 6AR and 9AR, and 2006-7, 11, 13ARX, 16AX, 1AR, 3AR, 5AR, 6AR, 8AR and 9AR. Four downgraded tranches face possible lower ratings. The rating actions on the 11 deals, which are primarily backed by first lien, Alt-A mortgages, were the result of higher-than-anticipated rates of delinquency, foreclosure, and real estate owned in the collateral relative to credit enhancement levels.

Moody’s said its analysis of current credit enhancement levels provided by excess spread, overcollateralization, and subordinate classes relative to current projected and stressed losses led to downgrades on four tranches issued by Amortizing Residential Collateral Trust, Series 2004-1 but upgrades 11 classes of C-BASS Mortgage Loan Asset-Backed Certificates, Series 2004-CB1, CB2 and CB4. All four transactions are backed by subprime loans.

Examination of expected losses relative to the credit enhancement provided by subordination, overcollateralization and excess spread resulted in downgrades for 11 classes of subprime loan-backed GSAMP Trust 2002-HE, of which nearly a third is over 60 days delinquent, 2004-HE1, HE2 and SEA2; placement on review for possible downgrade for 21 certificates issued by Residential Asset Securities Corp. Trusts 2004-KS1 through KS3, KS5, KS6, KS8, and KS10 through KS12; and placement on review for possible upgrade or downgrade for three classes of subprime loan-backed Wells Fargo Home Equity Trust Series 2004-1 and 2, Moody’s announced.

Structured Asset Securities Corp Trust 2004-S2 through S4, collateralized by closed-end second lien loans, saw lower ratings on three tranches because back ended losses have eroded credit support “to a point where the subordinate tranches no longer have sufficient enhancement levels to maintain their current ratings in light of the anticipated losses,” Moody’s said. Additionally, the deals saw six classes, including one that had ratings lowered, placed under review for possible downgrade.

Lower ratings were also assigned by Moody’s on 16 classes of scratch and dent-collateralized Ameriquest Mortgage Securities Inc., Quest Trust 2004-X1 through X3 and 2005-X2. Each of the deals has experienced an increasing proportion of severely delinquent loans while losses have reduced the level of available credit enhancement. Moody’s noted the X1 deal has had a significant slowdown of prepayment speeds and rapid pace of losses due to higher-than-anticipated delinquency pipeline build-up and higher severities of losses through liquidation of small balance mortgage collateral.

Another scratch and dent deal, CSFB 2004-CF1, saw one class placed on review for potential downgrade by Moody’s because its available credit enhancement has been reduced from losses and step-down, causing protection to subordinate bonds to be diminished, Moody’s said.

Moody’s downgraded ratings on 59 tranches 12 RALI deals issued in 2005 and 2006 and placed 15 tranches under review for a downgrade. Higher than anticipated delinquency and foreclosures on these Alt-A loans was the reason for the negative actions.

Standard & Poor’s announced it downgraded ratings on 11 notes issued by Carina CDO Ltd. after receiving a notice last week that the majority of the controlling noteholders were directing the trustee to proceed with the sale/liquidation of the collateral supporting the notes. Previous to this, there was a notice declaring an event of default. The ratings agency downgraded the ratings based on its expectation that collateral will be liquidated and most assuredly at depressed prices, as well as its opinion that there is a high potential for material losses to the noteholders based on the collateral’s current market value and expectation that market prices may not recover during the liquidation period.

Improved overall pool performance and defeasance led to upgrades on 11 classes or about $124 million of LB-UBS Commercial Mortgage Trust 2002-C2, Commercial Mortgage Pass-Through Certificates, Series 2002-C2, Moody’s reported.

Fitch announced it upgraded three classes totaling almost $92 million of Asset Securitization Corp.’s 1996-MD VI commercial mortgage pass-through certificates due to the payoff of two loans in October.

Moody’s said it raised the ratings on about $85 million of Banc of America Large Loan Inc., Commercial Mortgage Pass-Through Certificates, Series 3005-BIX1 because of increased credit support in two classes and decreased leverage from property releases in six classes.

Improved ratings on two classes totaling $73 million in Vornado Finance LLC, Commercial Mortgage-Backed Securities, Series 2000-VNO were due to improved performance and loan amortization, Moody’s said.

Solar Trust, Commercial Mortgage Pass-Through Certificates, Series 2001-1 reportedly saw $19 million or three classes upgraded by Moody’s to reflect increased credit support and improved overall pool performance.

Increased subordination levels and stable pool performance resulted in upgrades for two classes worth $17 million of SMA Finance Co., Inc. Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 1998-C1, Moody’s said.

Wachovia Bank Commercial Mortgage Trust, Series 2006-WHALE 7 had a $99 million class upgraded as a result of increased credit support from loan payoffs, Moody’s announced. But the deal also saw a $3 million tranche downgraded because of poor performance in one loan and three classes worth over $5 million placed on review for possible downgrade due to declines in property occupancy and net cash flow.