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Three classes of Aegis 2004-1 mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: class B1, from BBB-plus to BB (and removed from Rating Watch Negative); class B2, from BBB-minus to B; and class B3, from BB-minus to C/DR5. Fitch also affirmed the ratings on three other classes in the deal. The downgrades reflect deterioration in the relationship between credit enhancement and expected losses, Fitch said. The assets consist primarily of conventional residential mortgage loans, fully amortizing and balloon, extended to subprime borrowers.

Five classes from two Merrill Lynch Mortgage Investors Inc. subprime securitizations have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-OPT1, class B2, from BBB-plus to BB-plus, and class B3, from BBB-minus to B; and series 2003-WMC1, class M2, from AA-plus to AA-minus, class B1, from BB-minus to CCC/DR1, and class B2, from B to C/DR5. The rating agency also affirmed the ratings on 21 classes in four MLMI transactions. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations.

Eight classes from two issues of Asset Backed Funding Corp. subprime mortgage pass-through certificates have been downgraded by Fitch Ratings, and two classes from two other issues have been placed on Rating Watch Negative.The downgrades were as follows: series 2003-OPT1, class M-5, from BBB-plus to BB-plus, and class M-6, from BBB to B; and series 2004-FF1, class M-1, from AA to AA-minus, class M-2, from A to BBB-plus, class M-3, from A-minus to BBB-minus, class M-4, from BBB-plus to BB-plus, class M-5, from BBB to BB, and class M-6, from BBB-minus to BB-minus. The securities placed on Rating Watch Negative were class M-5 of series 2003-AHL1 and class M-6 of series 2004-OPT3. Fitch also affirmed the ratings on 19 classes from the four ABFC securitizations. The negative rating actions reflect the deterioration of credit enhancement relative to expected losses, the rating agency said. The underlying collateral for the transactions consists of fixed- and adjustable-rate subprime mortgage loans secured by first and second liens.

Twenty-seven classes from six issues of CDC Mortgage Capital Trust and IXIS Real Estate Capital Trust subprime mortgage pass-through certificates have been downgraded by Fitch Ratings.Fitch also affirmed the ratings on 12 CDC and IXIS classes in the transactions. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations. The collateral consists of 30-year fixed- and adjustable-rate subprime residential mortgage loans.

Forty-nine more classes of subprime mortgage- and asset-backed securities have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also affirmed the ratings on classes with outstanding balances of more than $8 billion. Among the securities affected by the latest downgrades were: 14 classes from two issues of IXIS mortgage pass-through certificates; 10 classes from three issues of Soundview Home Equity Loan Trust asset-backed certificates; seven classes from two issues of Citigroup Mortgage Loan Trust mortgage pass-through certificates; and seven classes from three issues of HSI Asset Securitization Corp. mortgage pass-through certificates. 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." Fitch can be found online at http://www.fitchratings.com.

Citing a survey showing that mortgage loans entering foreclosure have reached a 25-year high in California, the Center for Responsible Lending is taking California lawmakers to task for not responding to the subprime mortgage crisis.The Oakland, Calif.-based CRL pointed to the Mortgage Bankers Association's recently released delinquency survey for the second quarter, which indicated that the national delinquency rate for single-family home loans jumped to 5.12% in the second quarter and the number of loans entering foreclosure reached a record high. The MBA "failed to acknowledge the risky products and deterioration of lending practices in their own industry," the CRL said, criticizing brokers and lenders for promoting "risky products that maximized their profits" while "los[ing] sight of the basic fundamentals of lending." Unlike other states, California "has not acted to stem the foreclosures or tighten safeguards for borrowers," the organization said. The CRL said the state should provide emergency funding for housing counselors, bar prepayment penalties in subprime loans, and set lending standards that qualify borrowers based on the fully indexed interest rate and verified income. The group can be found online at http://responsiblelending.org.

Only $9 billion in subprime mortgage-backed securities were issued in August, and the credit enhancement on at least one adjustable-rate securitization exceeded 40%, according to a Friedman Billings Ramsay report."We observed credit enhancement of the AAA rated classes of an adjustable rate subprime RMBS, from a first tier issuer, as high as 41.25%," FBR managing director Michael Youngblood said. Credit enhancements were much lower when $42.1 billion in subprime residential MBS were issued in August 2006. "We believe that such lofty credit enhancement should lead to more conservative underwriting of non-agency mortgage loans and to equally lofty non-conforming mortgage rates, and both will curtail borrower demand and hence the volume of new mortgage loans and RMBS," the FBR researcher says in the report. FBR researchers recently reported that the default rate on subprime loans stood at 13.43% in June. They are now forecasting that defaults will rise to 16.11% by June 2008. (The default rate includes loans 90 days or more past due, in foreclosure and real estate owned.)

Mortgage companies cut their payrolls by 2,100 full-time employees in July, according to a newly released government report that is generally slow to react to changing conditions in the mortgage industry.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 459,200 in June to 457,100 in July. BLS data indicate that 32,700 jobs have been lost in the mortgage industry since February. The credit crunch that has nearly halted subprime lending and severely restricted the availability of jumbo mortgages is forcing many lenders to cut their payrolls dramatically. Recently, Lehman Brothers said it would shut down its subprime mortgage unit in a move that affects 1,200 employees. Countrywide Financial Corp. is cutting its work force by 900 employees, and more layoffs are expected. The BLS can be found online at http://stats.bls.gov.

Four classes from two issues of UBS Mortgage Asset Securitization Transactions Asset Back Securities Trust mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-WMC2, class M-5, from BBB to BB, and class M-6, from BB-plus to B-/DR1; and series 2004-OPT1, class M-6, from BBB-minus to BB, and class M-7, from BB-plus to CCC/DR2. In addition, Fitch affirmed the ratings on nine classes from the two deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral for the transactions consists of fixed- and adjustable-rate subprime mortgage loans secured by first and second liens on residential properties.

Eight classes from four issues of Morgan Stanley mortgage-backed securities have been downgraded by Fitch Ratings, and one class has been placed on Rating Watch Negative.The negative rating actions, involving classes in series 2002-AM2, series 2003-SD1, series 2004-NC3, series 2004-NC4, and series 2004-NC6, were attributed to a deterioration in the relationship between credit enhancement and expected losses. Fitch also affirmed the ratings on 35 Morgan Stanley classes. The collateral in the deals consists of fixed- and adjustable-rate subprime mortgage loans secured by first and second liens on residential properties.