Servicing

Three classes of notes issued by Taberna Preferred Funding II Ltd., a collateralized debt obligation consisting in part of securities issued by real estate investment trusts, have been placed on Rating Watch Negative by Derivative Fitch.The affected securities were the class E-1, class E-2, and class F notes. Taberna II is a CDO backed primarily by trust-preferred securities issued by REITs and homebuilders. The negative rating actions were attributed to "the rapid deterioration in the credit quality of several residential mortgage REITs underlying the transaction," including two unnamed REITs that recently filed for bankruptcy protection. The rating agency can be found online at http://www.derivativefitch.com.

Three classes of notes issued by E*Trade ABS CDO I Ltd/LLC have been downgraded by Fitch Ratings and removed from Rating Watch Negative.The downgrades were as follows: class B, from BBB to B/DR1; class C-1, from CC/DR3 to C/DR6; and class C-2, from CC/DR3 to C/DR6. Fitch also affirmed the rating on one other class in the deal. E*Trade I is a static cash flow collateralized debt obligation backed by collateral consisting of asset-backed securities, residential mortgage-backed securities, commercial mortgage-backed securities, and other CDOs. The downgrades were attributed to collateral deterioration and decreased credit enhancement. The securities were placed on Rating Watch Negative on July 12 due to the negative credit migration of subprime RMBS assets.

The ratings of Irwin Home Equity Corp. as a primary servicer of second-lien and of high loan-to-value residential mortgage loans have been downgraded from SQ2-plus to SQ2-minus by Moody's Investors Service.The ratings remain on review for possible downgrade, and Moody's has reduced the company's servicing stability assessment from average to below average. Moody's said the actions reflect the volatility in the market for second-lien and high-LTV loans, and the second-quarter earnings announcement of the parent corporation, Irwin Financial, which "noted the negative performance of the Irwin Home Equity line of business." Sustained negative performance could affect the willingness and ability of the parent corporation to invest in the servicing platform. "Additionally, there is uncertainty in the company's ability to maintain its servicing performance, staffing levels, turnover rates, and the composition of the management team," Moody's said.

UBS has increased its net income in the latest quarter more than 70% despite charges from the closure of a troubled U.S. mortgage unit, but it is warning that future results may be less favorable if the market's wider credit crunch continues."If the current turbulent conditions prevail throughout the quarter, UBS will probably see a very weak trading result in the investment bank, offset by predictable earnings from wealth and asset management," the company said. "This makes it likely that profits in the second half of 2007 will be lower than in the second half of last year." During the second quarter, net profit to shareholders at the company was up 72% compared with that of the previous quarter and 79% compared with that of a year earlier.

KKR Financial Holdings, a publicly traded affiliate of buyout firm Kohlberg, Kravitz, Roberts & Co., says it will take a $40 million loss on the sale of $5.1 billion of residential mortgage loans.The company bought floating-rate and hybrid-rate assets that were hedged with interest rate derivatives. KKR Financial continues to own $5.8 billion of home loan assets, mostly in the form of mortgage-backed securities, after the sale. Because of volatility in the secondary market, KKR Financial said it may have to record an additional charge of $200 million to $250 million to resolve potential funding disruptions. The company said its portfolio consists of home loan assets with a weighted average FICO score of 728 and a weighted average loan-to-value ratio of 71%. KKR Financial Holdings said it no longer intends to invest in residential home loan assets and will dispose of its portfolio either through runoff or through a "strategic alternative," which may include a sale of the common stock of its REIT subsidiary. KKR can be found on the Web at http://www.kkrfinancial.com.

Impac Mortgage Holdings, Irvine, Calif., a top-ranked nonprime lender, lost $153 million in the second quarter, citing higher delinquencies, deteriorating market conditions, and a large increase in its loan loss reserves.Last week the publicly traded real estate investment trust -- the subject of margin calls from its warehouse lenders -- suspended originations of alternative-A loans, which until recently accounted for most of its production. During the quarter Impac funded or bought $1.3 billion in mortgages, a 41% decline from the levels recorded in both the previous quarter and the second quarter of last year. Over the past two weeks its shares have traded as low as $0.95, compared with a 52-week high of almost $10. In the second quarter of 2006, it posted a $26 million profit. Impac, a mortgage REIT, can be found online at http://www.impaccompanies.com.

The senior unsecured debt of Thornburg Mortgage Inc. has been downgraded from Ba3 to B2 by Moody's Investors Service, and Thornburg's preferred stock has been downgraded from B2 to Caa1.The ratings remain under review for possible downgrade. "These rating actions reflect further deterioration in Thornburg's liquidity position due to significant funding and valuation volatility in the single-family mortgage market, even for the prime-quality assets in which Thornburg Mortgage invests," said Moody's analyst Brian Harris. Thornburg, a real estate investment trust, focuses on originating and investing in prime jumbo single-family mortgages, and Moody's said the REIT's access to the capital markets "continues to be constrained by dislocations in mortgage pricing in the jumbo mortgage market." Moody's can be found online at http://www.moodys.com.

Eleven certificates issued by Terwin Mortgage Trust have been placed on review for possible downgrade by Moody's Investors Service.The affected securities are as follows: series 2004-1HE, class B-3; series 2004-3HE, classes M-2, M-2-X, M-3, M-3-X, B-1, B-2, and B-3; series 2004-5HE, classes B-2 and B-3; and series 2004-13ALT, class M-3. "The actions are based on the analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to expected losses," Moody's said. Ten of the classes are backed by subprime fixed- and adjustable-rate mortgage loans. One class, from 2004-13ALT, is backed by alternative-A adjustable-rate mortgages.

The ratings on 12 tranches of mortgage-backed securities issued by Structured Asset Investment Loan Trust in 2004 have been placed on review for possible downgrade by Moody's Investors Service.The affected securities are as follows: series 2004-1, classes M5 and M6; series 2004-3, class M5; series 2004-4, classes M7 and M8; series 2004-5, class B; series 2004-7, class M7; series 2004-8, class M9; and series 2004-BNC1, classes M5, M6, M7, and B1. "The tranches being reviewed have experienced a decrease in available credit enhancement, and the recent pace of losses in each deal has eroded overcollateralization below its targeted level," Moody's said. The collateral backing each deal consists primarily of first-lien, subprime fixed- and adjustable-rate mortgage loans. Moody's can be found online at http://www.moodys.com.

Six classes of notes from American Home Mortgage Investment Trust series 2004-1 and series 2006-3 have been downgraded by Standard & Poor's Ratings Services.The downgrades were as follows: series 2004-1, class IV-M-3, from BBB to B; and series 2006-3, class IV-M-6, from A-minus to BBB-plus, class IV-M-7, from BBB-plus to BB, class IV-M-8, from BBB-plus to BB, class IV-M-9, from BBB-minus to B, and class IV-M-10, from BB to CCC. In addition, S&P placed class II-M-3 of series 2004-1 on Credit Watch with negative implications and affirmed the ratings on 285 classes from 16 transactions issued by American Home Mortgage Investment Trust and American Home Mortgage Assets Trust. The negative rating actions on series 2004-1 were attributed to recent losses that have caused a deterioration in credit support and reduced overcollateralization to below their respective targets. The downgrades affecting series 2006-3 reflect S&P's recently revised closed-end second-lien surveillance assumptions, which currently project losses of approximately $6.75 million on the delinquency pipeline, the rating agency reported. "We expect the transaction to realize these losses over the next six months, which will result in a continuous erosion of credit enhancement," S&P said. American Home Mortgage Investment Corp. filed for bankruptcy on Aug. 8, but its servicing operations remain open. S&P can be found online at http://www.standardandpoors.com.