Servicing

Meanwhile, in the wake of the growing subprime liquidity crisis, Countrywide Financial Corp. issued a statement Aug. 2 to reassure the market about the "continuing adequacy" of its liquidity and financial strength."Countrywide has longstanding and time-tested funding liquidity contingency planning," said Eric P. Sieracki, chief financial officer. "These planning protocols were designed to encompass a wide variety of conditions, including recent secondary-market volatility.... We place major emphasis on the adequacy, reliability and diversity of our funding sources. It is important to note that short-term liquidity is used exclusively to fund our highest-credit-quality, most-liquid assets." Mr. Sieracki said there have been no disruptions in financing the company's daily operations, including the placement of commercial paper.

Mortgage companies have cut their payrolls by nearly 46,000 employees since October, including 7,400 full-time positions in June, as the slowdown in mortgage originations, particularly subprime loans, is forcing a retrenchment.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 466,200 in May to 458,800 in June. The industry has experienced a 9.1% cutback in the work force since October, when industry employment stood at a 12-month high of 504,700. BLS data are generally good at indicating trends, but slow to react to major changes in the mortgage industry. During the boon years, the BLS data showed that industry employment rose very gradually. But the turmoil in the subprime market could cause significant downdrafts in the months ahead. The BLS can be found online at http://stats.bls.gov.

Three tranches from two deals issued by Credit Suisse First Boston Mortgage Securities Corp. in 2002 and 2003 have been placed under review for possible downgrade by Moody's Investors Service.The affected securities were as follows: CSFB Mortgage-Backed Pass-Through Certificates, series 2002-AR2, classes I-B-1 and I-B-2, and series 2003-AR12, class IV-M-2. The negative rating actions were based on credit enhancement levels that may be inadequate in view of the projected losses on the underlying pools, Moody's said. The collateral backing these classes consists of primarily first-lien, adjustable-rate jumbo A mortgage loans.

Two tranches from CSFB Mortgage-Backed Pass-Through Certificates series 2001-11 have been downgraded by Moody's Investors Service, and two tranches have been placed under review for possible downgrade.Class C-B-3 was downgraded from A2 to Caa1, and class C-B-4 was downgraded from Ba2 to C, while classes C-B-1 and C-B-2 were placed under review. On July 25, three subordinate tranches of the deal were fully written down due to a loss on one loan, and class C-B-3 took a $4,000 writedown, Moody's reported. "Today's actions are the result of these writedowns, and also reflects the continued threat posed by remaining delinquencies in the pool which, although substantially covered by mortgage insurance, may see further high severities," the rating agency said.

Twenty-two classes from 10 second-lien subprime transactions issued in 2007 have been placed on review for possible downgrade by Moody's Investors Service.The rating actions affected deals issued by Ace Securities Corp. Home Equity Loan Trust, American Home Mortgage Investment Trust, Bear Stearns Mortgage Funding Trust, C-Bass Mortgage Loan Asset-Backed Certificates, Greenpoint Mortgage Funding Trust, Nomura Asset Acceptance Corp. Alternative Loan Trust, SACO I Trust, and Terwin Mortgage Trust. In a review of second-lien transactions rated in 2007, Moody's said it found that their projected pipeline losses had "significantly increased over the past few months, likely affecting the credit support for these certificates." The rating agency noted that it recently updated its methodology for rating closed-end second-lien transactions because of "the rapid velocity of early delinquencies and losses in closed-end second-lien subprime loans originated in 2006."

Three certificates from two Terwin Mortgage Trust transactions have been downgraded by Moody's Investors Service, and three certificates from three other Terwin deals have been placed under review for possible downgrade.The downgrades were as follows: series 2004-10SL, class B-3, from Ba2 to Caa2; and series 2004-22SL, class B-3A, from Ba2 to Caa3, and class B-3B, from Ba2 to Caa3. The securities placed under review for possible downgrade are class B-3 of series 2004-4SL, class B-3 of series 2004-6SL, and class 1-B-4 of series 2004-18SL. Moody's also placed four certificates from series 2004-18SL under review for possible upgrade. The negative rating actions were attributed to the fact that credit enhancement levels are too low in view of projected losses. All the transactions are backed primarily by fixed-rate closed-end second-lien mortgage loans.

Moody's Investors Service has downgraded the servicer ratings of Litton Loan Servicing LP from SQ1 to SQ2 as a primary servicer of subprime residential mortgage loans and of second-lien residential mortgage loans, and as a special servicer.Moody's also downgraded Litton's rating as a primary servicer of manufactured housing loans from SQ2-minus to SQ3, and placed its servicer-quality ratings on review for possible downgrade. The actions were based on the announcement that Litton's parent, Credit-Based Asset Servicing and Securitization LLC, is experiencing liquidity problems due to an "unprecedented amount of margin calls" from its lenders, the rating agency said. Moody's reduced the company's servicing stability from above average to below average. (For the MH rating, the servicing stability rating was reduced from average to below average.) Moody's rates servicers on a scale of SQ1 (strong) to SQ5 (weak). It can be found online at http://www.moodys.com.

In conjunction with its Aug. 1 rating actions, Fitch Ratings also announced that it is publishing detailed information on expected-loss forecasts and the losses each security can withstand."An expected remaining loss percentage is published for each transaction, and the loss percentage that causes each class to take a principal loss, referred to as the 'break loss' percentage, is also provided," Fitch said. In addition, the multiple of the break loss to the expected loss is provided as the loss coverage ratio. Fitch can be found on the Web at http://www.fitchratings.com.

One hundred fifty classes of subprime residential mortgage-backed securities with outstanding balances totaling $2.4 billion were downgraded by Fitch Ratings on Aug. 1.Fitch also affirmed the ratings on 232 classes with outstanding balances of $20 billion. The rating agency said the actions reflect changes in surveillance methodology for 2005 and 2006 vintage loans "designed to capture the rapid deterioration of subprime mortgage performance." Among the downgrades were: 78 classes from 11 issues of SABR mortgage pass-through certificates; 34 classes from five issues of Credit Suisse First Boston Home Equity Asset Trust mortgage pass-through certificates; and 18 classes from three issues of First Franklin Financial Corp. residential mortgage-backed certificates. "The rating actions are based on changes that Fitch has made to its subprime loss forecasting assumptions adopted after the analysis of the June 27 remittance data," the rating agency said. "The updated assumptions better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness."

Wells Fargo Funding Inc. and Countrywide Institutional Mortgage Services Group have agreed to purchase mortgages from 32 community banks that are part of a joint venture put together by a for-profit subsidiary of America's Community Bankers.The trade group launched ACB Mortgage LLC in February to act as a negotiating agent with investors to get the best secondary-market execution. "We anticipate that this new venture will immediately benefit" from Countrywide's and Wells Fargo's inclusion, said Deborah Whiteside, president of ACB Mortgage. CIMSG president Doug Jones said a "coordinated execution" involving ACB Mortgage and Countrywide "is designed to offer product solutions and help community banks become more successful in today's environment of declining market shares, reduced margins, and increased competition."