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Three classes from New Century 2006-S1, a second-lien mortgage-backed securities deal, have been downgraded by Fitch Ratings. The downgrades were as follows: classes A1, A-2A, and A-2B, from B to CCC/DR2. "The rating actions are based on deterioration in the relationship between credit enhancement and expected losses, and reflect continued poor loan performance and home price weakness," Fitch said.

Thirty-six classes of notes issued by six collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings and removed from Rating Watch Negative. The affected securities are seven classes from G-Star 2004-4 Ltd. and six classes from G-Star 2005-5 Ltd., both cash flow CDOs; six classes from G-Star 2003-3 Ltd./Corp., a cash flow structured finance CDO; seven classes from E*Trade ABS CDO IV Ltd., a cash flow structured finance CDO; six classes from Vertical ABS CDO 2006-2 Ltd./Corp., a hybrid cash flow and synthetic structured finance CDO; and four classes from Commodore CDO III Ltd./Inc., a cash flow structured finance CDO. The downgrades were attributed to collateral deterioration in, and underlying exposure to, subprime RMBS, as well as (in two cases) structured finance CDOs with underlying exposure to subprime RMBS and (in one case) alternative-A RMBS. Fitch can be found online at http://www.fitchratings.com.

Fitch Ratings has downgraded the preferred-stock rating of Freddie Mac from A-plus to A, while affirming the Issuer Default Ratings of the government-sponsored enterprise. The GSE's long-term IDR was affirmed at AAA, and its short-term IDR was affirmed at F1-plus. Noting that the actions followed Freddie's announcement of a $972 million net loss for the first half, Fitch attributed the downgrade to a greater likelihood that Freddie will eliminate dividends on preferred stock as housing prices decline. It also speculated that the GSE's expected capital raise "may meet market resistance" and that the way the issue is structured (between preferred and common stock) may affect Freddie's preferred-stock ratings. Fitch can be found on the Web at http://www.fitchratings.com.

Connecticut Attorney General Richard Blumenthal is the latest state AG to file suit against Countrywide Financial Corp. for allegedly pushing consumers into deceptive, unaffordable loans and workouts, and allegedly charging homeowners in default unjustified and excessive legal fees. Mr. Blumenthal's lawsuit, filed in Superior Court in Hartford, seeks restitution of up to $100,000 per violation of state banking laws and up to $5,000 per violation of state consumer protection laws. "Countrywide conned customers into loans that were clearly unaffordable and unsustainable, turning the American Dream of homeownership into a nightmare," Mr. Blumenthal said in a statement. "When consumers defaulted, the company bullied them into workouts doomed to fail. Countrywide crammed unconscionable legal fees into renegotiated loans, digging consumers deeper into debt." A spokeswoman for Bank of America, which now owns Countrywide, said in a statement: "While we cannot comment on pending litigation, we will respond to the AG in due course."

Nearly 7% of alternative-A mortgages originated in the first half of 2007 are already 90 days or more delinquent or in foreclosure, according to the Federal Deposit Insurance Corp. The early default rate for alt-A mortgages originated in 2006 was only 3.59%, according to an analysis by FDIC using LoanPerformance data on private-label securities. FDIC researchers suspect that the deterioration in the performance of the 2007 vintage largely reflects conditions in housing markets rather than underwriting. Meanwhile, investors will be looking to see how the $300 billion in alt-A mortgages guaranteed by Fannie Mae performed in the second quarter when the mortgage giant reports its earnings Friday morning. These stated-income loans, which are generally made to self-employed borrowers with high credit scores, constituted 12% of Fannie's single-family book of businesses in the first quarter and were responsible for 43% of its credit losses. Fannie executives maintain that the default rate on their alt-A loans is "approximately one half" the default rate on the overall private-label alt-A market.

Deutsche Bank AG took 2.3 billion euros ($3.6 billion) in total writedowns in the second quarter that were partially related to residential mortgage-backed securities (not 2.3 billion euros in RMBS writedowns, as MortgageWire originally reported). The writedowns "were recorded on residential mortgage-backed securities (predominantly alt-A), monoline insurers, commercial real estate, leveraged finance loans and loan commitments, and other positions," the company said.

Eleven classes of notes issued by two collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities are six classes from Duke Funding IX Ltd./Corp., a hybrid cash and synthetic structured finance CDO; and five classes from Porter Square CDO III Ltd./Inc., a cash flow structured finance CDO. The downgrades were attributed to "significant collateral deterioration" in the portfolios' subprime RMBS. In the case of Duke Funding IX, the downgrade was also attributed to alternative-A RMBS, and in the case of Porter Square III, it was also attributed to structured finance CDOs with underlying exposure to subprime RMBS. Fitch can be found online at http://www.fitchratings.com.

FirstFed Financial Corp., Los Angeles, has reported a net loss of $35.5 million ($2.60 per share) for the second quarter, citing a $90.2 million provision for loan losses linked to chargeoffs, modifications, and nonaccrual of single-family mortgage loans. FirstFed noted that the loss and the loan-loss provision were down from those of the first quarter, which were $69.8 million ($5.11 per share) and $150.3 million, respectively. A year earlier, FirstFed recorded net income of $29.1 million ($1.74 per share) and a loan-loss provision of $3.1 million. The bank said its higher levels of single-family nonaccrual loans (those more than 90 days delinquent or in foreclosure) "are the result of the large numbers of adjustable-rate mortgages that faced a recast of their payment amount in the latter part of 2007 and early 2008."

Fannie Mae is increasing its "adverse market" delivery fee from 25 basis points to 50 bps starting Oct. 1. "This upfront charge primarily addresses continuing market deterioration and applies to all loans," whether under standard or negotiated terms, the mortgage giant said. The secondary-market agency is also adjusting its loan pricing, and it appears to favor loans with private mortgage insurance and loan-to-value ratios above 85%. "We are increasing loan-level prices on certain mortgages with loan-to-value ratios of 75.01%-85%," Fannie says. The government-sponsored enterprise can be found on the Web at http://www.fanniemae.com.

Ginnie Mae's rapid growth has prompted its new president, Joseph Murin, to establish a risk committee and take other steps to ensure that the agency continues to guarantee high-quality mortgage-backed securities. "This is a very turbulent time for the mortgage industry," the Ginnie Mae president said. "We have to take a long, hard look at our strategy to ensure we continue on the right path." Mr. Murin has appointed Ginnie veteran Stephen Ledbetter to be the agency's chief risk officer. He is also reconstituting the Ginnie Mae issuer review board. Mr. Ledbetter will continue to serve as acting vice president for MBS. The secondary-market agency guaranteed $39.1 billion in MBS in the first quarter and $67.7 in the second quarter, including $1.1 billion in jumbo MBS in June. Ginnie can be found on the Web at http://www.ginniemae.gov.