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S&P Revises Opinion on Performance of Subprime Loans

Rating agencies have continued to home their assessment of troubled nontraditional mortgage securitization vintages from 2005 and 2006 and related collateralized debt obligations.

Standard & Poor's Ratings Services has downgraded 498 of the 612 classes of residential mortgage-backed securities that it placed on CreditWatch with negative implications July 10, and it has corrected the value and status of the securities.

S&P said the 612 classes, rated from the fourth quarter of 2005 through the fourth quarter of 2006, represent $7.35 billion of securities, not $12.02 billion as originally reported.

The downgraded classes, representing $5.69 billion in securities, are backed by first-lien subprime mortgage collateral.

S&P also left 26 of the first-lien subprime classes on CreditWatch and affirmed the ratings on 74 classes and removed them from CreditWatch.

Of the remaining 14 classes, the ratings on nine were affirmed and removed from CreditWatch "because they involve alternative-A mortgage collateral and were not intended to be included" in the July 10 rating actions, and five were left on CreditWatch because they are backed by closed-end second-lien mortgage collateral and will be reviewed later by S&P, the rating agency said.

Meanwhile, S&P also downgraded 64 other classes backed by first-lien subprime mortgage collateral that involve CreditWatch actions taken before July 10 on 70 tranches of RMBS.

Of six classes that remain on CreditWatch, three remain "because the issuer is appealing the decision based on the presence of mortgage insurance" and three others remain because they involve either closed-end second-lien or alternative-A mortgage collateral, S&P reported.

The 70 classes were rated from the fourth quarter of 2005 through the fourth quarter of 2006, S&P said.

Also, Fitch Ratings said that 170 subprime residential mortgage-backed securities transactions have been placed "Under Analysis," which indicates that rating actions on the deals will be taken over the next few weeks.

Fitch said the latest under-analysis list reflects June performance results that show "continued negative trends, particularly for the late 2005 and 2006 subprime vintages," as well as changes to Fitch's subprime loss forecasting assumptions based on the new data.

"These changes were made to better capture the deteriorating performance of pools from 2006 and late 2005 in the face of continued poor loan performance and home price weakness," the rating agency said.

In addition, 33 classes from 19 collateralized debt obligations backed partly by subprime residential mortgage-backed securities have been placed on Rating Watch Negative by Fitch Ratings.

The CDO rating actions "are a direct result of collateral deterioration, specifically subprime RMBS, whereby significant portions of the portfolio have been downgraded, placed on RWN or Under Analysis by either Fitch, Moody's or S&P in recent weeks," Fitch said.

The rating agency said it also factored in exposure to 2006 vintage closed-end second-lien RMBS "regardless of any rating activity, based on the severe underperformance of this subsector." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.bondbuyer.com/ http://www.sourcemedia.com/

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