Servicing

The housing market is deteriorating so quickly that credit assumptions made only a few months ago are now "unrealistic," and many banks and thrifts will likely have to hike their provisions for loan losses again, according to an analyst at Friedman, Billings, Ramsey.Washington Mutual "revised its provision for loan losses by $1 billion on two separate occasions over the last two months, and [WaMu] is not the only financial company that has revised its credit costs," an FBR equity research report says. In July, WaMu executives estimated that loss provisions would range from $1.5 billion to $1.7 billion this year. Now the giant Seattle thrift estimates that provisions will be in the $2.7 billion to $2.9 billion range. In reporting third-quarter results, WaMu increased its loan-loss reserve from $372 million to $967 million. The company also reported a 72% drop in earnings from a year ago. "We still believe there could be more upside to [WaMu's] provision levels, which would result in lower earnings estimates," the FBR report says. FBR can be found online at http://www.fbr.com.

NovaStar Financial Inc., Kansas City, Mo., has announced that the New York Stock Exchange has advised the company that NovaStar's common and preferred stock no longer meet the standards for continued listing on the NYSE due to a change in the company's corporate structure.NovaStar noted that it had announced a decision in September not to declare a dividend related to its 2006 taxable income, thereby terminating its status as a real estate investment trust retroactive to January 2006. The company now operates as a C corporation, requiring it to satisfy the NYSE's criteria for listing as a corporation. But the NYSE said NovaStar's current market capitalization and other factors do not meet the criteria, NovaStar reported. The company said it plans to request a review of the determination. NovaStar can be found on the Web at http://www.novastarmortgage.com.

Two classes of mortgage pass-through certificates issued by Impac Secured Assets Corp. in 2004 have been placed under review for possible downgrade by Moody's Investors Service.The affected securities were class B of series 2004-3 and class B of series 2004-4. Moody's also placed two classes from series 2004-1 on review for possible upgrade. The negative rating actions were based on an analysis of credit enhancement provided by subordination, overcollateralization, excess spread, and mortgage insurance relative to expected losses, Moody's said. Series 2004-3 and 2004-4 are backed by alternative-A adjustable-rate mortgage loans.

Five certificates issued by NovaStar Mortgage Funding Trust have been placed on review for possible downgrade by Moody's Investors Service.The affected securities were as follows: series 2004-1, classes B-2 and B-3; series 2004-2, classes B-2 and B-3; and series 2004-4, class B-3. The negative rating actions were based on an analysis of credit enhancement provided by subordination, overcollateralization, excess spread, and mortgage insurance relative to expected losses, Moody's said. The transaction is backed by subprime fixed- and adjustable-rate mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

Eleven classes of mortgage pass-though certificates from four deals issued by GSAMP Trust in 2002 and 2004 have been placed on review for possible downgrade by Moody's Investors Service.The affected securities are as follows: series 2002-HE, class M-1, class M-2, class B-1, and class B-2; series 2004-HE1, class B-2 and class B-1; series 2004-HE2, class B-4; and series 2004-SEA2, class M-2, class M-3, class M-4, and class M-5. The negative rating actions were attributed to analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to expected losses. GSAMP Trust 2002-HE, 2004-HE1, and 2004-HE2 are backed by subprime fixed- and adjustable-rate mortgage loans. GSAMP Trust 2004-SEA2 is backed by subprime fixed-rate seasoned mortgage loans.

Four tranches of two deals issued by Citigroup Mortgage Loan Trust in 2003 have been downgraded by Moody's Investors Service.The downgrades were as follows: series 2003-HE3, class M-4, from Ba1 to B2; and series 2003-HE4, class M-5, from Ba1 to B1, class M-6, from Ba3 to Caa2, and class M-7, from B2 to C. The downgrades were attributed to higher-than-expected delinquencies and losses. "Moreover, the 2003-HE4 transaction has experienced erosion of overcollateralization due to the recent pace of losses," the rating agency said. The collateral backing the deals consists primarily of first-lien subprime residential mortgage loans.

Two certificates from Ameriquest Mortgage Securities Inc. series 2003-2 have been downgraded by Moody's Investors Service, and a third has been placed on review for possible downgrade.Class M-3 was downgraded from B3 to Ca, and class M-4 was downgraded from Ca to C. Class M-2 was placed on review for possible downgrade. The negative rating actions were based on an analysis of credit enhancement levels provided by excess spread, overcollateralization, and subordinate classes relative to the expected loss, Moody's said. The transaction is backed by adjustable- and fixed-rate subprime mortgage loans. Moody's can be found online at http://www.moodys.com.

Three classes from two issues of Banc of America Alternative Loan Trust mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series ALT 2004-9 pool 4, class 15-B5, from B to C/DR5 (and removed from Rating Watch Negative); and series ALT 2004-10 pool 3, class 15-B3, from BBB to BB-minus (and removed from Rating Watch Negative), and class 15-B4, from B to C/DR4. Fitch also placed class 15-B4 of series ALT 2004-9 pool 4 and class 15-B2 of series ALT 2004-10 pool 3 on Rating Watch Negative and affirmed the ratings on 14 other classes in the two deals. The negative rating actions were attributed to a deterioration of credit enhancement relative to loss expectations. The collateral in the transactions consists of fixed-rate, first-lien mortgage loans.

Thirteen classes from seven subprime mortgage-backed securities deals issued by Morgan Stanley have been downgraded by Fitch Ratings.Fitch also placed one of the downgraded classes on Rating Watch Negative and affirmed the ratings on 17 other classes from the transactions. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and expected losses. Fitch can be found online at http://www.fitchratings.com.

Standard & Poor's has downgraded 1,713 classes of U.S. RMBS backed by first-lien subprime, first-lien alternative-A, and closed-end second-lien mortgage loans issued in the first half of 2007.The downgraded securities had an original par value of $23.35 billion, which represents 6.28% of the U.S. residential mortgage-backed securities backed by such collateral that were rated by S&P during that period, the rating agency reported. S&P said it also affirmed the ratings on securities representing $245.1 billion of U.S. RMBS backed by such collateral, and placed the ratings of 646 other classes on CreditWatch negative. "Transactions issued in 2007 have not experienced an adequate payment history to reliably apply our traditional surveillance assumptions," S&P said, "however, the same risks that are apparent in transactions issued in 2006 are present in transactions issued in 2007." The rating agency can be found online at http://www.standardandpoors.com.