LTVs & Subordination Levels

Recent subprime ratings actions

April 29, 2003

By PATRICK CROWLEY

The certificates in Ameriquest’s $900 million Series 2003-5 securitization of subprime mortgages has been rated ‘Aaa’ by Moody’s. Covered in the rating are the Class A-1, A-2, A-3, A-4, A-5 and A-6 certificates. Moody’s has also rated the mezzanine and subordinated classes of certificates issued in the transaction from ‘Aa2’ to ‘Baa1’. The ratings are based on the quality of the fixed-rated mortgage loans, level of subordination, overcollateralization, lender-paid mortgage insurance and excess spread. Moody’s said that overall the credit quality of the loan pool is stronger than that of average pool backing recent subprime transactions mainly due to the lender-paid mortgage insurance placed on the loans. About 79% of the loans with an original loan-to-value (LTV) in excess of 60% are covered by a policy from Mortgage Guaranty Insurance Corp. The weighted-average LTV for the pool is 82%, with 63.5% of the mortgages having an LTV greater than 80% and 13.5% above 90% LTV. For fixed rate mortgage FRM subprime pools generally, the weighted-average LTV is about 76% with only about 35% of the loans having LTVs above 80%.

Moody’s has rated ‘Aaa’ the $450 million Class A senior certificates issued in the ABFS 2003-1 subprime mortgage securitization reflecting credit support provided through subordination, excess spread, overcollateralization and cash flow.

The senior certificates in GMAC–RFC’s $2.1 billion securitization of fixed-rate and adjustable-rate subprime mortgage loans, RASC 2003-KS2, have been rated ‘Aaa’ by Moody’s. The mezzanine certificates in the deal have been rated ‘Aa2’ to ‘Baa2’. The ratings are based on credit enhancement provided through a combination of primary mortgage insurance, excess spread, overcollateralization, subordination, structure of the deal and the credit quality of the underlying mortgages. The FRM weighted-average LTV of about 79.2% is slightly higher than the subprime average of about 77%. The loans in the adjustable rate mortgage (ARM) pool carry an average LTV of 81.6%, slightly higher than the subprime average.

The senior notes issued in Irwin Home Equity Loan Trust’s $300.4 million 2003-1 transaction has been assigned a ‘Aaa’ rating by Moody’s. In addition the mezzanine and subordinate classes of the deal have been assigned ratings ranging from ‘Aa2’ to ‘Baa3’. The ratings reflect the credit support derived from subordination, excess spread and overcollateralization. The transaction involves the securitization of home equity closed-end and line of credit mortgage loans and high LTV home equity closed-end and line of credit mortgage loans. The combined LTV ratios range from 94% to 125%.

Moody’s has rated ‘Aaa’ the senior certificates of Bear Stearns Asset Backed Securities Trust $499.8 million 2003-AC1 Alt/A mortgage loans based on credit quality of the collateral pool and level of subordination. Moody’s said the credit quality of the fixed-rated residential mortgage loans is average for Alt/A loan pools.

Moody’s assigned a ‘Aaa’ rating to the notes issued by GMAC Mortgage Corp.’s $522 million Series 2003-HE1 home equity securitization based primarily on a financial guaranty insurance policy from Financial Guaranty Insurance Co., which is rated ‘Aaa’. Financial Guaranty Insurance is protected against losses on the underlying mortgage loans through a combination of excess spread and overcollateralization.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer.