Servicing

Moody's Investors Service has downgraded two certificates from a subprime mortgage transaction issued by Structured Asset Securities Corp., series 2005-AR1.Class B1 has been downgraded from Baa3 to Ba1 and class B2 has been downgraded from Ba1 to B1. "The two most subordinate certificates from the transaction have been downgraded because existing credit enhancement levels are low given the current projected losses on the underlying pools. The pools of mortgages have built up a large delinquency pipeline and future loss could cause a significant erosion of the overcollateralization," Moody's said. The transaction consists of first-lien adjustable- and fixed-rate loans originated primarily by wholesaler Argent Mortgage Co. LLC, according to the rating agency. In addition, Argent's retail affiliate Ameriquest Mortgage Co. originated loans comprising 4% of the pool.

Standard & Poor's Ratings Services estimates that the expected loss level for deals issued in 2006 is between 5.25% and 7.75%.S&P said that while most "BBB" and "BBB-" rated classes are protected from losses, securities in those rating categories are likely to see higher default rates than other similarly rated securities in recent history. S&P arrived at its estimate by comparing deals issued in 2006 with those issued in 2000, noting that the 2006 deals have performed similarly to the 2000 deals during their first year.

Fitch Ratings says that the liquidity pressure currently squeezing the subprime residential mortgage sector may affect their loan servicing operations.Fitch has already lowered the servicer rating on several nonprime lenders, among them AMC Mortgage Services and NovaStar Mortgage, and the rating agency advised in a recent report that the financial condition of a servicer's parent is an important component in rating a servicing operation. Senior director Mary Kelsch said the financial strength of a company is important because it affects the servicer's ability to remain in business and continue making investments in infrastructure, systems and staffing to meet current and future servicing needs in the troubled nonprime sector. "Any servicer that has predominantly subprime credit quality loans in portfolio could find its timelines and overall cost to service facing increased levels not seen in recent history," she said.

Genworth Financial, Richmond, Va., has teamed up with a professor at the University of Pennsylvania's Wharton School of Economics to create the U.S. Mortgage Index, a quarterly report to look at trends in residential real estate financing.The author of the report, Susan M. Wachter, said consumers and mortgage professionals "should take a look at more traditional financing tools" in the current market environment. The first report compares monthly payments for five popular low downpayment products. In her study, the pay-option adjustable-rate mortgage has the lowest first month payment, but the highest payment in month 61. The piggyback product and the 10/1 interest-only ARM also have higher payments, while the 30-year fixed-rate mortgage with single premium mortgage insurance stays level and the 30-year FRM with monthly MI has a lower payment. Genworth is the parent of a Raleigh, N.C.-based private mortgage insurer. "It's troubling that short term, adjustable-rate mortgages remain popular, even for borrowers who might not be able to afford their mortgage payment after the interest rate adjusts. This includes piggyback loans and other mortgages that lead to little equity build up," Ms. Wachter said. "With little or no equity available, refinancing has become difficult, and foreclosures are up nationwide." The report is available at http://www.genworth.com/mortgageinfo.

Eight classes from four First Franklin Financial Corp. residential mortgage-backed security transactions have been downgraded by Fitch Ratings.The downgrades were as follows: series 2001-FF2, class M-1, from AA to A, class M-2, from BBB-minus to BB, and class M-3, from BB-minus to B; series 2002-FF2, class M-2, from BBB-minus to BB-plus; series 2003-FF2, classes M-4-A and M-4-F, from BBB-plus to BBB; and series 2003-FF3, class M-4, from BBB-plus to BBB-minus, and class B, from BBB to BBB-minus. In addition, 12 classes from six deals were placed on Rating Watch Negative, and the ratings on over 200 classes from more than 20 deals were affirmed. The downgrades were attributed chiefly to "negative trends" in the relationship between delinquency and credit enhancement. The collateral for the transactions consists of subprime mortgage loans secured by first liens on residential properties. Fitch can be found online at http://www.fitchratings.com.

OceanFirst Financial Corp., Toms River, N.J., has revised its fourth quarter and full year 2006 earnings after previously revealing it failed to set aside reserves for early payment defaults for subprime loans made by its Columbia Home Loans subsidiary.OceanFirst has established a $9.6 million reserve for $148.2 million in 100% loan-to-value subprime loans originated by Columbia in 2006. OceanFirst said that Columbia's officers failed to report investor repurchase demands made as a result of early payment defaults. As a result it has discontinued originating subprime loans and "taken disciplinary action" against "certain officers of Columbia." The reserve caused OceanFirst to post a loss of $0.13 per share for the fourth quarter; it originally posted profits of $0.40 per share. For the year, it had a net profit of $1.07 per share; the original announcement was for profits of $1.59 per share.

Nine classes from four First Franklin Financial Corp. residential mortgage-backed security transactions have been downgraded by Fitch Ratings.The downgrades were as follows: series 2004-FFH1, class M-7, from BBB-plus to BB-plus, class M-8, from BB to B-plus, and class M-9, from BB-minus to C/DR4; series 2004-FFH2, class B-1, from BB-plus to B-plus, and class B-2, from BB to CC/DR2; series 2004-FFH3, class M-9, from BBB-minus to BB-minus, and class B-1, from BB-plus to B-plus; and series 2004-FFH4, class M-11, from BBB-minus to BB-minus, and class B-1, from BB to B-plus. In addition, six classes from the same four deals were placed on Rating Watch Negative, and the ratings on nearly 100 classes from eight deals were affirmed. The downgrades were attributed primarily to losses that have exceeded excess spread for at least seven of the past nine months, eroding the over-collateralization. The collateral for the transactions consists of subprime mortgage loans secured by first liens on residential properties.

Nationwide, the number of new foreclosure filings totaled 130,786 in February, down 4% from January, according to RealtyTrac.That translates into a national foreclosure rate of one filing for every 884 households. The foreclosure rate in February of this year was up 12% from February of 2006. RealtyTrac's foreclosure yardstick includes default notices, auction-sale notices and bank repossessions. But despite the month-over month improvement, 2007 still could shape up to be a troublesome year. "Based on our numbers for the first two months of 2007, foreclosure activity is running at a rate that would project to a 33% increase over 2006," said James Saccacio, CEO of RealtyTrac. The states with the highest foreclosure rates in February were Nevada, Colorado and Florida. The company can be found online at www.realtytrac.com

On Thursday morning Morgan Stanley will hold a public auction of $2.48 billion in mortgages originated by ailing subprime giant New Century Financial Corp.A source familiar with the matter said Morgan believes it has the legal right to the loans because NCFC is in default on its warehouse covenants. (Morgan is one of several warehouse lenders that recently informed NCFC that they no longer will fund its production.) Morgan is auctioning off the loans "as is" with no representations and warranties. Morgan had originally committed $2.5 billion in warehouse lines to NCFC. The source said Morgan is holding a "clean auction" in order to establish a value for the mortgages in anticipation of a "pre-packaged" bankruptcy sale of NCFC. Late last week NCFC said it will realize a $46 million loss on a deal struck with Barclays Bank PLC to settle $900 million in buyback/financing claims. NCFC, which is no longer funding loans, has been delisted by the New York Stock Exchange. It is the subject of criminal and civil investigations.

Capital Trust Inc., a New York-based real estate investment trust, has announced the closing of a $50 million senior unsecured revolving credit facility with WestLB AG.The REIT said the facility will bear interest at 1.50% above the London interbank offered rate. The company can be found on the Web at http://www.capitaltrust.com.