Servicing

Class B-6 of Nomura Asset Acceptance Corp. mortgage pass-through securities, series 2003-A2, has been downgraded from BB-plus to BB by Fitch Ratings. Fitch also affirmed the ratings on 11 classes in two Nomura transactions. The downgrade was based on deterioration in the relationship between credit support levels and loss expectations.

Two classes from Structured Adjustable Rate Mortgage Loan Trust mortgage pass-through certificates series 2004-13 have been downgraded by Fitch Ratings. Class B-4 was downgraded from BB to CC/DR3, and class B-5 was downgraded from B to CC/DR4. Fitch also affirmed the ratings on five classes from two SARM securitizations. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses.

More than 100 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 27 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 10 classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $1.4 billion. The securities affected by the latest downgrades were: 37 classes from three issues of Aegis mortgage pass-throughs; 21 classes from two issues of GE pass-throughs; 18 classes from two issues of Ace pass-throughs; 10 classes from one issue of Fremont pass-throughs; 10 classes from one issue of Option One Mortgage Loan Trust pass-throughs; and nine classes from one issue of Residential Asset Mortgage Products Trust pass-throughs. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness."

The short-term Issuer Default Rating and short-term deposit rating of Chevy Chase Bank FSB have been downgraded from F2 to F3 by Fitch Ratings, which cited the "challenging operating environment" of the mortgage banking business. Fitch also downgraded Chevy Chase's Individual rating from B/C to C, but affirmed the bank's long-term IDR at BBB-minus. The rating agency said the downgrades stemmed from "profitability pressure" at the bank in the past year. "Expected earnings pressure combined with the company's obligations on its preferred debt and balance sheet growth will likely reduce capital levels," Fitch said. "Also a consideration in Fitch's downgrade of the short-term IDR is the reduced flexibility due to less favorable terms and pricing in the capital markets for residential mortgage securitizations." Fitch can be found online at http://www.fitchratings.com.

The Federal Agricultural Mortgage Corp. and the National Rural Utilities Cooperative Finance Corp. have announced the sale of $400 million of five-year notes secured by National Rural to Farmer Mac. The notes are secured by mortgage debt issued by rural electric distribution cooperatives that are members of National Rural, a not-for-profit finance cooperative. Farmer Mac, a congressionally chartered corporation that provides a secondary market for rural housing and agriculture-related mortgage debt, said the deal provides National Rural with greater liquidity for its rural utility cooperative members and advances Farmer Mac's role as an investor in rural America. The organizations can be found online at http://www.farmermac.com and http://www.nrucfc.coop.

The default rate on securitized subprime loans hit 25.2% in December, up 185 bp from that of the previous month, but defaults on alternative-A loans are also surging, according to a report by Friedman Billings Ramsey Investment Management. Defaults on alt-A mortgages jumped to 8.26% in January, up 106 basis points from the level in December and 250 bps from that of November. Alt-A borrowers have high credit scores, but are generally self-employed and highly leveraged. There are 2.8 million securitized alt-A loans totaling $839 billion, and nearly 20% of the loans are secured by second homes and investment properties. The alt-A world is vulnerable in today's market with falling house prices and deteriorating labor market conditions. "It is really a double-whammy for alt-A," said FBRIM managing director Michael Youngblood. (The default rate includes loans 90 days or more past due, in foreclosure, and real estate owned.) FBRIM is a subsidiary of Friedman Billings Ramsey, which can be found online at http://www.fbr.com.

The Federal Reserve Board is soliciting public input on Bank of America's acquisition of the nation's largest mortgage lender and servicer, Countrywide Financial Corp., and plans to hold two public hearings in April. The hearings are scheduled for April 22 in Chicago and April 28-29 in Los Angeles. In weighing the public benefits of a bank merger, the Fed normally considers competitive issues as well as the institutions' Community Reinvestment Act ratings. Based in Calabasas, Calif., Countrywide originated $408.3 billion in mortgages in 2007, and it serviced $1.48 trillion in mortgages as of Feb. 28.

Response to the Federal Reserve's first auction designed to address liquidity concerns via financings that allow a greater range of collateral seems to indicate that liquidity concerns have dissipated somewhat. The response to the Fed auction Thursday suggests that "financing needs are less dire than expected," according to Noah Estrin, mortgage-backed securities trading strategist at RBS Greenwich Capital. Also suggesting that the "flight to quality" in the market has diminished is the increase in the benchmark 10-year Treasury yield to around 3.5%, according to Yahoo Finance. During the latest round of liquidity concerns, the benchmark yield was closer to 3.3%.

Three tranches of mortgage-backed securities from Sequoia Alternative Loan Trust 2006-1 have been downgraded by Moody's Investors Service. The downgrades were as follows: class B-1, from Aa3 to B2 (and placed under review for possible further downgrade); class B-2, from B1 to Ca; and class B-3, from Caa2 to Ca. In addition, class A-2 was placed on review for possible downgrade. The negative rating actions were generally 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, adjustable-rate, alternative-A mortgage loans.

Three tranches of mortgage-backed securities from Luminent Mortgage Trust 2005-1 have been downgraded by Moody's Investors Service. The downgrades were as follows: class M-1, from Aa1 to Aa3; class M-2, from Aa2 to A3; and class B-1, from Aa3 to Baa1. The downgrades were generally 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, adjustable-rate, alternative-A mortgage loans.