Servicing

Four classes of First Franklin subprime mortgage pass-through certificates, series 2005-FFH3, have been downgraded by Fitch Ratings.The downgrades were as follows: class B-1, from BB-plus to B-plus; class B-2, from BB to B; class B-3, from BB-minus to C/DR5; and class B-4, from B-plus to C/DR6. In addition, Fitch placed class B-4 of First Franklin series 2005-FF1 and classes M-9, M-10, and B of series 2005-FF5 on Rating Watch Negative and affirmed the ratings on 50 classes from five First Franklin transactions. Fitch said the rating actions were based on changes the rating agency has made to its subprime loss forecasting assumptions. Fitch can be found on the Web at http://www.fitchratings.com.

Twelve classes of certificates from six deals issued by Morgan Stanley ABS Capital I Inc. Trust in 2004 have been downgraded by Moody's Investors Service.Moody's has also confirmed the ratings on four classes from two of the deals. The downgrades were attributed to an analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to the expected loss. The transactions are backed by fixed and adjustable-rate subprime mortgage loans.

Forty-seven classes from mortgage securitizations issued by Residential Accredited Loans Inc. in 2005 and 2006 have been downgraded by Fitch Ratings.Fitch also placed 12 classes from RALI transactions on Rating Watch Negative, removed 15 classes from Rating Watch Negative, and affirmed the ratings on 46 classes. The downgrades were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral for the 18 deals consists primarily of first-lien, alternative-A residential mortgage loans.

Moody's Investors Service has downgraded 162 classes of primarily first-lien subprime mortgage-backed securities from five issuers.In addition, Moody's placed 39 classes of certificates on review for possible downgrade. Among the downgraded securities were 77 classes from 13 deals issued by Morgan Stanley; 59 classes from five deals issued by Bear Stearns; and 11 classes from two deals issued by Nomura. The collateral is experiencing higher-than-expected rates of delinquency, foreclosure, and real estate owned relative to credit enhancement levels, Moody's said.

Moody's Investors Service has downgraded 190 classes of second-lien mortgage-backed securities from eight issuers.In addition, Moody's placed 43 classes of certificates on review for possible downgrade. Among the downgraded securities were 65 classes from nine deals issued by SACO I Trust; 41 classes from seven deals issued by Terwin Mortgage Trust; 36 classes from five deals issued by CSFB Home Equity Mortgage Trust; 16 classes from two deals issued by First Franklin Mortgage Loan Trust; and 11 classes from two deals issued by Merrill Lynch Mortgage Investors Trust. Moody's said the negative rating actions were taken because credit enhancement levels were too low in view of projected losses. The rating agency can be found online at http://www.moodys.com.

The housing counseling organization NeighborWorks America is urging its colleagues in the Hope Now Alliance to endorse a five-year freeze on resets of adjustable-rate subprime mortgages."We are hoping for at least five years," said Marietta Rodriguez, who serves as NeighborWorks' liaison with the lenders and servicers in the Hope Now alliance. "Three is probably not going to be enough." Treasury Department officials and alliance members are expected to agree on a plan this week to prevent the wave of resets from becoming a wave of foreclosures. The nonprofit organization, which receives federal funding, provides housing counseling services to troubled borrowers who call the Hope toll-free hotline through its network of 245 community originations. NeighborWorks is conducting its own outreach efforts to increase public awareness of the hotline. Ms. Rodriguez noted in an interview with MortgageWire that servicers are responding to the crisis by increasing their capacity to respond to thousands of calls a day from housing counselors and borrowers in distress. But some servicers are "rushing to catch up," she said.

A study by the National Training and Information Centers shows that subprime mortgage defaults nearly doubled in Chicago during the first half of this year compared with the levels recorded in the same period of last year.The Chicago-based organization, which serves as a resource center for community organizations, reported that subprime defaults (loans 90 days or more past due or in foreclosure) jumped to 3,005 in first half of this year from 1,541 last year. "If these families ultimately lose their homes…'for sale' properties will flood the market," the NTIC study says. Defaults on prime loans totaled 2,429 in the first half, up 16% from last year's level. The NTIC study also shows that defaults on "young" subprime loans seasoned less than 24 months doubled to 2,538. Defaults on young loans are "often caused by fraud or abusive lending practices at origination," the study says.

Meanwhile, Fitch Ratings has downgraded the preferred stock rating of Freddie Mac from AA-minus to A-plus and removed it from Rating Watch Negative in the wake of Freddie's recent preferred stock offering.Fitch noted that it had placed the preferred stock rating on Rating Watch Negative in November, indicating that a downgrade was likely "if the amount of hybrid securities relative to total capital became more significant, resulting in higher loss absorption for preferred shareholders." The government-sponsored enterprise recently announced the pricing of $6 billion of fixed- to floating-rate, nonconvertible, noncumulative perpetual preferred stock, and the offering closed on Dec. 4.

Fannie says it plans to issue $7 billion in nonconvertible preferred stock in December and cut its dividend in the first quarter from 50 cents to 35 cents to shore up its capital base and provide more support for the mortgage market."The market needs us to be there -- and we believe this plan will help us do that," Fannie president and chief executive Daniel Mudd said. The giant mortgage company also said "worsening housing and credit markets" will "adversely" affect its financial results for the fourth quarter. "In addition, the company continues to believe that conditions in the housing and credit markets, including expected further declines in home prices, will negatively affect the company's financial condition, and results of operations in 2008," Fannie said. The government-sponsored enterprise can be found on the Web at http://www.fanniemae.com.

A super senior swap transaction entered into by Adams Square Funding I Ltd., a collateralized debt obligation backed in part by mortgage-backed securities, has been downgraded and left on review for possible further downgrade by Moody's Investors Service.Moody's downgraded the U.S. $342 million Super Senior Swap Transaction from Ba2 to B3. The downgrade reflects "severe deterioration" in the credit quality of the underlying portfolio, as well as the occurrence of an event of default on Oct. 12 caused by a failure of the class A overcollateralization ratio to equal or exceed 100%, as required under the indenture. Adams Square Funding I is a hybrid CDO backed primarily by a portfolio of residential MBS, other CDOs, and synthetic securities in the form of credit default swaps.