Servicing

Fifty-seven certificates from 11 transactions issued by Structured Asset Securities Corp. and backed by second-lien loans have been downgraded by Moody's Investors Service. Moody's also placed 19 classes of certificates on review for possible downgrade. The downgrades were attributed to the fact that credit enhancement levels, including excess spread and subordination, were too low in view of projected losses, Moody's said. "The actions take into account the continued and worsening performance of transactions backed by closed-end-second collateral," the rating agency said, adding that "substantial pool losses" in recent months have eroded the credit enhancement available to the mezzanine and senior certificates.

Fitch Ratings has downgraded 91 classes of notes from 17 collateralized debt obligations backed partly by subprime residential mortgage-backed securities. Among the affected securities are: 10 classes of notes issued by Duke Funding High Grade III Ltd.; eight classes issued by Monterey CDO Ltd./LLC; eight classes issued by Dalton CDO Ltd.; eight classes issued by Orient Point CDO Ltd.; seven classes issued by Kleros Preferred Funding II Ltd.; six classes issued by ABS CDO II Ltd./LLC; six classes issued by Bernoulli High Grade CDO I Ltd./Inc.; six classes issued by Broderick CDO 1 Ltd.; six classes issued by Ipswich Street CDO Ltd./LLC; six classes issued by Fort Sheridan ABS CDO Ltd.; five classes issued by Duke Funding X CDO Ltd./Corp.; four classes issued by C-BASS CBO XIV Ltd.; three classes issued by Benazzi CDO 2005-1 Ltd.; three classes issued by TORO ABS CDO I Ltd.; one class issued by Salisbury International Investments Ltd.; and one class issued by Marathon Structured Funding I LLC. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolios' subprime RMBS and, in most cases, alternative-A RMBS and structured finance CDOs with underlying exposure to subprime RMBS. the rating agency can be found online at http://www.fitchratings.com.

Interactive Mortgage Advisors, Denver, is brokering the auction of servicing rights on a $14.3 billion bulk portfolio of Ginnie Mae home loans. Prospective buyers are asked to prepare two bids, one that includes a "buyout" of eligible loans and a bid for the servicing portfolio that excludes the "buyout" option. The average loan size totals $116,228. The weighted average interest rate is 6.267%, and the weighted average servicing fee is 0.406%. Delinquencies represent 8.01% of the loans, and 1.71% are in foreclosure or bankruptcy. Bids are due at noon Mountain Daylight Time on May 19.

Fitch Ratings and Standard & Poor's Ratings Services downgraded the ratings of Residential Capital LLC, Minneapolis, following ResCap's announcement of an exchange offer for approximately $14 billion of unsecured bonds. Fitch downgraded the company's issuer default rating from BB-minus to C and its senior debt from B-plus to C, while S&P downgraded ResCap's long-term corporate credit rating from CCC-plus to CC. Both rating agencies said they were likely to lower their ratings further, to default status, upon the execution of the exchange offer. "ResCap's announced debt exchange offer is part of a plan to address the company's capital structure in light of current and expected future market conditions, by lengthening debt maturities and providing security to first-lien creditors," Fitch said. ".... At the completion of the exchange, Fitch would assign a post-default IDR and new issue-level ratings solely reflecting a prospective view of ResCap and its new capital structure." The rating agency said it "envisions" that the new IDR would fall in the single-B category. S&P said a successful exchange by ResCap "would extend debt maturities, providing needed relief, but the action illustrates the gravity of the company's financial position."

Fannie Mae and Freddie Mac are defending their need for higher prices on riskier products, maintaining at the Mortgage Bankers Association's Secondary Market Conference in Boston that the first requirement under their charters is to provide liquidity to the market. "Our goal is to fulfill our mission of providing liquidity," said Thomas Lund, Fannie Mae's executive vice president for single-family mortgage business. "We need to align our prices to the risk we take in the marketplace to make sure we will be a liquid secondary-market provider." Patricia Cook, Freddie Mac's executive vice president and chief business officer, said her company is "approaching pricing in a risk-managed way" because the method used to price mortgages in the past is now passé. "Average pricing worked" in a narrow market, she explained. But with a wide array of products and underwriting requirements, it works "less effectively." Ms. Cook told the conference that Freddie Mac has struggled with a high default rate and declining profitability, so it had no choice but to re-evaluate its pricing. "We know you're hurting, but so are we," she said. The GSEs can be found online at http://www.fanniemae.com and http://www.freddiemac.com.

A Federal Housing Administration bill approved by the House Financial Services Committee last week will fall far short of its goal of helping 1 million at-risk borrowers avoid foreclosure, according to budget analysts. The Congressional Budget Office estimates that the FHA refinancing bill (H.R. 5830) would refinance only 500,000 homeowners into FHA loans during the life of the four-year program, when 2.8 million borrowers are expected to face foreclosure proceedings. The budget analysts note that the bill requires holders of first liens to write down loans to about 85% of the current appraised value, and they would have "an incentive to direct their highest-risk loan into the program." Other liens must be extinguished, which leaves little incentive for second lienholders to participate, unless a foreclosure sale is imminent. About 40% of subprime and alternative-A mortgages have second liens. "CBO estimates about 25% of the loans with second liens could be refinanced under this new program," the agency said.

A new research report by Friedman Billings Ramsey predicts that if Bank of America moves forward with its purchase of Countrywide Financial Corp., it may face $30 billion in loan writedowns once the deal closes. FBR's advice to BoA is to "completely walk away" from the deal. Late last week BoA filed an amended S-4 with the Securities and Exchange Commission, noting that there is no assurance that any of Countrywide's debt will be redeemed, assumed, or guaranteed. The filing prompted Standard & Poor's to downgrade Countrywide's debt to junk status, from BBB-plus/A-2 to BB-plus/B. (Roughly 25% of Countrywide's subprime servicing portfolio is delinquent.) FBR also says it believes that BoA will soon renegotiate the purchase price down to $2 or less per share from $7. Countrywide's spokesman could not be reached for comment by MortgageWire's deadline.

Seven certificates from two transactions issued by Terwin Mortgage Trust and backed by second-lien loans have been downgraded by Moody's Investors Service. The downgrades were as follows: series 2005-11, class I-M-1b, from Aa2 to A1, class I-M-2, from Aa3 to Baa3, class II-M-1, from Aa2 to Baa1, and class II-M-2, from Aa3 to Baa3; and series 2005-13SL, class G, from Aaa to Baa1, class M-1, from Caa2 to C, and class B-1, from Ca to C. Moody's also maintained the four downgraded certificates from series 2005-11 on review for possible further downgrade. The downgrades were attributed to the fact that credit enhancement, including excess spread and subordination, was low in view of projected losses. "The actions take into account the continued and worsening performance of transactions backed by closed-end-second collateral," Moody's said.

Nine classes of mortgage pass-through certificates from Quest Trust series 2006-X2 have been downgraded by Fitch Ratings. Fitch also placed another class in the deal on Rating Watch Negative, removed from Rating Watch Negative the classes previously placed there, and affirmed the ratings on two other classes.

Fitch Ratings has downgraded 10 classes of notes and preference shares from two collateralized debt obligations backed partly by mortgage-backed securities. The affected securities are four classes of notes and one class of preference shares issued by Enhanced Mortgage Backed Securities Fund III Ltd., and four classes of notes and one class of preference shares issued by Enhanced Mortgage Backed Securities Fund IV Ltd. Both are mortgage market value CDOs. Fitch attributed the downgrades to "significant" declines in the net asset values of the CDOs, putting them "closer to hitting the class C and class D trigger levels." If the triggers are breached, the transactions "would be forced to sell assets, which would result in the realization of further losses," the rating agency said.