Servicing

Seven tranches from two First NLC Trust 2005 subprime transactions have been downgraded by Moody's Investors Service. The downgrades were as follows: First NLC Trust 2005-1, class M-12, from Baa2 to Ba1, and class M-13, from Baa3 to B1; and First NLC Trust 2005-2, class M-5, from A2 to Baa1, class M-6, from A3 to Baa2, class M-7, from Baa1 to Ba1, class M-8, from Baa2 to Ba3, and class M-9, from Baa3 to B2. Moody's attributed the downgrades to "an increasing proportion of severely delinquent loans." The collateral consists primarily of first-lien subprime mortgage loans.

Citing "deteriorating housing markets," Standard & Poor's Ratings Services has lowered its ratings on Indymac Bancorp and its subsidiaries. S&P lowered its counterparty credit rating on Indymac from BB-plus/B to B/C and downgraded the preferred stock of Indymac and IndyMac Bank FSB to D, pointing to the recent suspension of dividend payments on the preferred stock. The corporate credit ratings on the bank and the holding company have been placed on CreditWatch with negative implications. "This action was taken in response to our growing concerns about Indymac's exposure to deteriorating housing markets, which has driven nonperforming assets to very high levels and resulted in continued credit-related losses that have eroded capital," said S&P credit analyst Robert B. Hoban Jr. S&P said it is concerned that "continued increases in problem assets and increasingly high chargeoff levels will leave the company unable to get ahead of its asset quality problems. Because Indymac's profitability was already depressed by the cyclical decrease in mortgage finance activity and reduction in its gain-on-sale margin, we expect the company to continue to suffer quarterly losses for at least the rest of 2008." The rating agency can be found online at http://www.standardandpoors.com.

The Federal Agricultural Mortgage Corp., Washington, has reported a net loss to common stockholders of $8.3 million ($0.84 per share) for the first quarter, compared with net income available to common stockholders of $3.9 million ($0.37 per share) for the first quarter of 2007. Farmer Mac attributed the loss to market value changes on financial derivatives used to hedge interest rate risk on its assets and liabilities. The government-sponsored enterprise also reported "core earnings," a performance measure based on net income available to common stockholders less the after-tax effects of unrealized gains and losses on financial derivatives. Core earnings totaled $10.5 million ($1.06 per share) in the first quarter, versus $6.2 million ($0.58 per share) a year earlier. "To date, the credit issues that have arisen in the housing and consumer sectors of the economy have mot affected the agricultural economy in general, or Farmer Mac's guarantee portfolio in particular," said Henry D. Edelman, Farmer Mac's president and chief executive officer. "Reflecting the effectiveness of Farmer Mac's ongoing credit risk management and the strength of the U.S. agricultural economy, 90-day delinquencies in Farmer Mac's guarantee portfolio remained at notably low levels as of March 31, 2008, in terms of both dollars and percentages." The company can be found online at http://www.farmermac.com.

Beazer Homes USA, an Atlanta-based homebuilder that is under investigation by various state and federal agencies regarding mortgage origination practices, has filed restatements of earnings that reflect an increase of $27.6 million in retained earnings from 1998 through 2006. Beazer announced last year that an internal investigation had found that its mortgage unit, Beazer Mortgage Corp., violated Federal Housing Administration rules, especially regarding downpayment assistance programs. In addition to such violations, Beazer said its Audit Committee discovered accounting errors and irregularities resulting primarily from "inappropriate accumulation of reserves and/or accrued liabilities associated with land development and house costs" and inaccurate revenue recognition related to certain home sale/leaseback provisions. The company said it is still under investigation by the U.S. Attorney's Office in the Western District of North Carolina and other state and federal agencies regarding the matters that have been the subject of the Audit Committee's independent investigation. Beazer can be found online at http://www.beazer.com.

Foreclosures fell more than 5% in April, and pre-foreclosure filings declined as well, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm. Lenders repossessed 74,570 homes following foreclosure in April, while pre-foreclosures declined 7.5%, the company said. "The sky isn't falling, and the bottom of the housing market is in sight," said Alexis McGee, president of the firm. (Ms. McGee forecast in early 2007 that the worst of the foreclosure crisis was over.) On a quarter-over-quarter basis, 17 states had fewer real estate owned filings in April, the company said. "That's the good news," she said. "The bad news is that still 3.8 of every 1,000 households nationwide (288,497 REO filings) have been lost to foreclosure so far this year." The company can be found online at http://www.foreclosures.com.

Senate Banking Committee Chairman Christopher J. Dodd, D- Conn., says his committee will mark up two bills on May 15 that will address the housing crisis -- an FHA refinancing bill and a GSE regulatory reform bill. The Federal Housing Administration bill is similar to a House-passed measure that authorizes the FHA to refinance "underwater" mortgages if the investor/servicer writes down the principal amount to 85% of the current appraised value. The government-sponsored enterprise bill would strengthen regulation of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Efforts to craft a compromise with Sen. Richard C. Shelby, R-Ala., have failed so far, and Sen. Dodd introduced the two newly drafted measures on his own. The Bush administration says it hopes to get a "strong" and "balanced" GSE bill but is likely to oppose the FHA refinancing bill. President Bush has already threatened to veto the House FHA bill (H.R. 3221). FHA Commissioner Brian Montgomery said H.R. 3221 "forces taxpayers to pay for bad loans" and creates "hundreds of thousands of risky loans." The commissioner told the National Association of Realtors that there is room for compromise if Congress is willing to take a "workable" approach that is fiscally sound.

GSE regulator James Lockhart says he expects Fannie Mae's and Freddie Mac's capital-raising efforts to allow them to increase their investment portfolios dramatically and bolster the mortgage market. Fannie Mae recently announced that it is raising $6 billion in additional capital through issuances of common and preferred stock. Mr. Lockhart, director of the Office of Federal Housing Enterprise Oversight, said it looks as if Fannie will raise "significantly more than that. There is large demand." He also said he expects Freddie Mac to announce a capital-raising plan soon. (The government-sponsored enterprise is slated to release its first-quarter financial report May 14.) Raising the capital is "extremely important for the mortgage market," the regulator said, because it will allow the GSEs to purchase hundreds of billions of dollars of mortgages for their investment portfolios and securitize over $1 trillion in mortgages. "So they have the wherewithal to serve the market," Mr. Lockhart told a legislative conference sponsored by the National Association of Realtors.

Seven classes of notes from five collateralized debt obligations linked to AIG have been placed on Rating Watch Negative by Fitch Ratings. The affected securities are: class A1MM of G-Star 2002-1 Ltd./Corp.; classes A-1MM A and A-1MM B of G-star 2002-2 Ltd./Corp.; class A-1 of Lakeside CDO I Ltd./Inc.; classes A-1MM-a and A-1MM-b of Putnam Structured Products CDO 2001-1 Ltd.; and class A-1MM of TIAA Real Estate CDO 2003-1. Fitch said the short-term ratings on the CDO classes are supported by a put agreement from AIG Financial Products Corp., which in turn is guaranteed by AIG, the parent company. AIG's long-term Issuer Default Rating was downgraded from AA to AA-minus on May 8 and remains on Rating Watch Negative, while its short-term IDR was placed on Rating Watch Negative on May 8. Fitch can be found online at http://www.fitchratings.com.

Four tranches from Deutsche Alt-A Securities Mortgage Loan Trust 2007-RAMP1 has been downgraded by Moody's Investors Service. The downgrades were as follows: class M-6, from Baa1 to Baa3; class M-7, from Baa2 to B2; class M-8, from Baa3 to B2; and class M-9, from Ba1 to Ca. Class M-8 was placed under review for possible further downgrade. The ratings were downgraded, in general, based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien, alternative-A mortgage loans.

Twenty-nine tranches from 13 alternative-A transactions issued by Residential Asset Securitization Trust have been downgraded by Moody's Investors Service, and 132 tranches have been placed on review for possible downgrade. In addition, six of the downgraded tranches remain on review for possible further downgrade. The ratings were downgraded, in general, based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien, fixed -rate, alt-A mortgage loans. Moody's can be found online at http://www.moodys.com.